Financially optimized management planning under risk aversion results in even-flow sustained timber yield

• Risk aversion spreads final harvests over time with thus smaller patches.
• Timber harvests and net revenues are evened out under risk aversion.
• Value-at-risk maximization allows for the lowest coefficients of variation.
• Continuous and balanced yields are financially optimal for risk-averse investors.
• An even flow is best achieved by risk-averse planning and balanced age classes.

The effect of explicit integration of uncertainty – determined through financial, non-linear optimization – on the distribution of timber harvests and net revenues over time was examined. A management plan for a 30 year period was developed for (1) a Bavarian municipal forest rich in standing timber, and (2) a hypothetical forest enterprise with even-aged stands which were based on actual growth data from the municipal forest. Maximization of net present value (NPV) – which implicitly accounts for uncertainty by discounting future returns – was contrasted with two alternative objective functions which explicitly account for uncertainty: maximization of the certainty equivalent (CE) and of the value-at-risk (VAR). The sources of risk considered were hazard probabilities of trees, and price volatility. Periodic harvest volumes and resulting net revenues were smoothest and increasingly more consistent when VAR was maximized, while NPV maximization encouraged sudden, unbalanced outputs. The enterprise value – measured by NPV – was reduced by 16%. The impact of risk aversion was slightly less pronounced when initial age-class structure more closely resembled a fully regulated forest. Yet, the coefficients of variation for harvests and net revenues were reduced to 14% and 21%. However, risk aversion offered a more effective hedge than age-class structure.