Abstract
This article examines the effect of risk-aversion on the short-run supply of timber, when the harvest revenue is invested in a portfolio of a riskless and a risky asset. Assuming that the future stumpage price and the rate of return on the risky asset are independent and normally distributed, it is shown that the effect of risk-aversion on the optimal harvesting behavior depends on the sign of a marginal variance function. This shows the effect of a marginal increase in the harvest volume on the variance of the future wealth, evaluated at the optimal harvest-investment decision under risk-neutral preferences. If the marginal variance is negative, then risk-aversion increases harvest in the first-period. If it equals zero, then only high degrees of risk-aversion affect (increase) the harvest. Finally, if the marginal variance is greater than zero, then high degrees of risk-aversion increase the harvest, whereas low degrees of risk-aversion have the opposite effect. The result has implications for the analysis of the harvesting behavior of any renewable resources.