A Note on the Tree-Cutting Problem in a Stochastic Environment

The optimal harvest rule in a stochastic world, proposed by Clarke and Reed, ignored the additional rental and management costs incurred if a harvest is postponed. Noting the critical role these costs play in any practical decision-making process, we modify the Clarke-Reed rule and derive a set of comparable but more meaningful analytical results. We further argue that there no longer exist stochastic counterparts of the Wicksellian and Faustmann “tree-cutting” problems once land rent and management expenditure are explicitly included in the harvest rule formulation.