Faustmann

Faustmann refers to the 19th-century German forester and economist whose work on forest economics established the Faustmann model, a foundational approach to determining the optimal rotation period for a permanent forest crop. The central idea is the land expectation value (LEV), the present value of the net timber rents from an infinite sequence of rotations, evaluated from the standpoint of the landowner. The model formalizes the trade-off between harvesting earlier to realize returns sooner and delaying harvest to gain a larger yield, while incurring regeneration and maintenance costs and tying up land over time.

Key inputs are: initial planting or establishment costs, recurrent silvicultural costs, expected timber yield curves, timber prices, and a constant discount rate. Under standard simplifying assumptions of constant prices and growth, the optimal rotation age is the harvest age that maximizes LEV. The Faustmann solution typically yields a finite rotation period for positive discount rates and regeneration costs, and it shows that economic optimality may favor leaving land in forest for longer than if only immediate revenue were considered; however, higher discount rates generally shorten the optimal rotation.

The model has had a lasting impact on forest management, policy, and research. It has been extended to allow for growing timber prices, risk and uncertainty, taxes, multi-species stands, non-timber benefits, and stochastic growth models. Faustmann’s work laid the groundwork for modern forest economics and the economic interpretation of rotation and land values.