A two-option Approach to Solving the Decision problem of Regeneration

Real option theory has for some decades been used in forest economics to analyse decision problems which involve irreversible and stochastic decisions. One such decision is when to harvest a stand and with what species to regenerate. The latter decision can be postponed for some time, making a species change possible if favoured by the value development or if regeneration of the present species is unsuccessful. This problem is analysed here as extension of the traditional two-option problem, by involving several stochastic elements.