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How do Forest Owners’ Risk Preferences Affect Harvesting Decisions? Case-study in Fujian Province, China

How do Forest Owners’ Risk Preferences Affect Harvesting Decisions? A Case-study in Fujian Province, China

Wei Duan, Nicholas J. Hogarth, Yicheng Jiang and Qian Chen (2022), "How do Forest Owners’ Risk Preferences Affect Harvesting Decisions? A Case-study in Fujian Province, China", Journal of Forest Economics: Vol. 37: No. 3, pp 259-293. http://dx.doi.org/10.1561/112.00000547

ABSTRACT: Collective forests in China are the major source of the nation’s wood supply, and therefore understanding the harvesting decisions of the small-scale forest owners who manage them is crucial to realizing national forest production goals. However, forest owners’ timber harvesting decisions depend very much on individual attitudes toward risks and benefits (i.e., risk preferences), but this topic has received very little research attention. In this paper, we applied prospect theory and lottery experiments to measure individuals’ risk preferences. In 2018, 320 household questionnaires were combined with a field experiment in Fujian Province, China, to empirically determine the link between risk preferences and timber harvesting behavior. The results indicate that the higher the degree of risk aversion the forest owners have, the more they are willing to harvest forests under household management, as well as the earlier they are inclined to harvest. However, the harvesting amount per mu of risk-averse forest owners are lower than risk-neutral or risk-taking households due to lower investment in their forestlands. Further analysis indicates that improving forest owners’ forestland tenure security is helpful to reduce forest owners’ risk-avoiding behaviors. This study contributes to a better understanding of the relationship between household risk preference and timber harvesting behavior, and will help inform the design of alternative policies that could reduce forest management risks.