Faustmann's formula, or the Faustmann model, gives the

present value In economics and finance, present value (PV), also known as present discounted value, is the value of an expected income stream determined as of the date of valuation. The present value is usually less than the future value because money has inte ...

of the income stream for forest rotation. It was derived by the German

forester A forester is a person who practises forestry, the science, art, and profession of managing forests. Foresters engage in a broad range of activities including ecological restoration and management of protected areas. Foresters manage forests to ...

Martin Faustmann in 1849. The ''rotation problem'', deciding when to cut down the forest, means solving the problem of maximising Faustmann's formula and this was solved by

Bertil Ohlin Bertil Gotthard Ohlin () (23 April 1899 – 3 August 1979) was a Swedish economist and politician. He was a professor of economics at the Stockholm School of Economics from 1929 to 1965. He was also leader of the People's Party, a social-libe ...

in 1921 to become the ''Faustmann-Ohlin theorem'', although other German foresters were aware of the correct solution in 1860. : ƒ(''T'') is the stock of timber at time ''T'' : ''p'' the price of timber and is constant : which implies that the value of the forest at time ''T'' is ''pf''(''T'') : ''r'' is the discount rate and is also constant. The Faustmann formula is as follows: :

PV = pf(T) \exp(-rT) \cdot  = \frac.

From this formula two theorems are interpreted: : The optimal time to cut the forest is when the time rate of change of its value is equal to interest on the value of the forest plus the interest on the value of the land. :The optimal time to cut is when the time rate of change of its value is equal to the interest rate modified by land rent.

See also

References

Further reading