| Martin Faustmann | |
| Birth Date: | 1822 2, df=yes |
| Birth Place: | Babenhausen |
Martin Faustmann was a German forester who is regarded as the father of forest economics.[1] His 1849 analysis of the optimal rotation problem, often referred to as the Faustmann formula, remains in widespread use in natural resource valuation and policy analysis,[2] [3] and continues to be a topic of active research.[4]
Faustmann studied Catholic theology at the University of Giessen for one semester in 1841 before turning to forestry.[5] He completed his examinations in 1848 and became the chief forester of Dudenhofen near Darmstadt, where he remained until his death.
A foundational problem in the economics of forest management concerns the optimal age at which a stand should be harvested (i.e. whether it would be better to harvest and sell younger trees today, or wait for them to grow and obtain a larger timber sale revenue later).
The key insight of Faustmann's formula is that because timber is a renewable resource, it is not possible to answer this question by accounting for standing timber alone. Although the impatient forester receives a smaller payment by harvesting younger trees, they also gain the opportunity to re-plant sooner. In other words, if a patient forester chooses to let their stand grow for an additional decade, they might receive a much larger timber sale revenue, but at the cost of delaying the next rotation: after harvesting, they are left with bare land, while their impatient colleague now has 10-year-old-trees.
Faustmann's formula allows forest managers to consistently solve for the optimal harvest age given information about the growth rate of the stand, expected timber prices, and a discount rate.[2] The formula circumvents the problem of infinite regress because it can be simplified and solved as a geometric series.[6] Because it accounts for the time value of money (or the opportunity cost of delaying a harvest), the financially optimal Faustmann rotation is generally shorter than the biologically optimal rotation age.