Martin Faustmann was a German

forester A forester is a person who practises forest management and 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. Fores ...

who is regarded as the father of forest economics. 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, and continues to be a topic of active research.

Biography

Faustmann studied Catholic theology at the

University of Giessen University of Giessen, official name Justus Liebig University Giessen (), is a large public research university in Giessen, Hesse, Germany. It is one of the oldest institutions of higher education in the German-speaking world. It is named afte ...

for one semester in 1841 before turning to forestry. He completed his examinations in 1848 and became the chief forester of Dudenhofen near

Darmstadt Darmstadt () is a city in the States of Germany, state of Hesse in Germany, located in the southern part of the Frankfurt Rhine Main Area, Rhine-Main-Area (Frankfurt Metropolitan Region). Darmstadt has around 160,000 inhabitants, making it the ...

, where he remained until his death.

Scientific contributions

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 Faustmann's formula, or the Faustmann model, gives the present value of the income stream for forest rotation. It was derived by the German forester Martin Faustmann in 1849. The ''rotation problem'', deciding when to cut down the forest, means ...

is that because timber is a

renewable resource A renewable resource (also known as a flow resource) is a natural resource which will replenish to replace the portion depleted by usage and consumption, either through natural reproduction or other recurring processes in a finite amount of t ...

, 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.

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. The formula circumvents the problem of

infinite regress Infinite regress is a philosophical concept to describe a series of entities. Each entity in the series depends on its predecessor, following a recursive principle. For example, the epistemic regress is a series of beliefs in which the justi ...

because it can be simplified and solved as a

geometric series In mathematics, a geometric series is a series (mathematics), series summing the terms of an infinite geometric sequence, in which the ratio of consecutive terms is constant. For example, 1/2 + 1/4 + 1/8 + 1/16 + ⋯, the series \tfrac12 + \tfrac1 ...

. Because it accounts for the

time value of money The time value of money refers to the fact that there is normally a greater benefit to receiving a sum of money now rather than an identical sum later. It may be seen as an implication of the later-developed concept of time preference. The time ...

(or the

opportunity cost In microeconomic theory, the opportunity cost of a choice is the value of the best alternative forgone where, given limited resources, a choice needs to be made between several mutually exclusive alternatives. Assuming the best choice is made, ...

of delaying a harvest), the financially optimal Faustmann rotation is generally shorter than the biologically optimal rotation age.

References

{{DEFAULTSORT:Faustmann, Martin 1824 births 1876 deaths German foresters 19th-century German scientists 19th-century German economists Forestry academics People from Rhineland-Palatinate