The impact of timber price uncertainty and flexible harvest on bidding behavior in N +1 price forest biodiversity auctions

Abstract

Conservation auctions have received increased attention since the turn of the century. Improved management of forests for biodiversity is one of the areas where this has been the case. Previous studies have to my knowledge not accounted for the impact of timber price variability on forest owners’ bidding behavior. This thesis fills this void in the literature. Brazee and Mendelsohn (1988) showed that timber price fluctuations affect the timing of timber cutting as the forest owners' reservation prices for cutting increase under higher price variability. A basic insight from auction theory is that no bidder will submit a bid that makes him or her worse off. This is also the case for conservation contract auctions. I combine the above two insights to show that bids for forest conservation auctions will become higher under timber price variability compared to cases with timber prices without such fluctuations.