Abstract
Debt is a common feature of forestland ownership, yet it has not been formalized in previous work on uncertainty and forestry decision-making. We extend Faustmann-based price search models by introducing a debt obligation that landowners feel pressure to pay off in finite time. We assume a price arrival process that is more general than in previous search models and allows for multiple unknown offers each period. The motivation for paying off debt could be the high costs of searching for another price offer, costs of renegotiating or refinancing debt, increasing interest charges, or landowner preferences for eliminating debt. The decision problem and associated reservation price strategy depend on a comparison of costs and benefits of waiting to harvest. The timing of debt-payoff date is the critical feature of our model. We show that a debt-payoff date implies a certain path of reservation prices over time and ultimately affects harvesting behavior. The direction and magnitude of effect depends on forest maturity. We also investigate how the reservation price–debt payoff date relationship depends on debt in future rotations, nontimber income, amenity benefits, and single versus infinite rotations. Although these ideas, particularly the inclusion of amenities and nontimber income, are absent from the conventional price search literature, we show they have important effects on the optimal reservation price strategy when landowners feel pressure to pay off debts in finite time. FOR. SCI. 47(2):188–196.