Burt, Osca R. and Steven C. Blank, 1999. "New" method simplifies decision of when to replace orchards. California Agriculture, 53(3)(May-June):30-32.

Outlines a method to predict optimum replacement age for cling peach orchards. Based on the work of Hotelling circa 1925, it employs discounting of initial investment and future expenditures as compared to future physical yields to develop of unit cost (per ton) of crop production at different orchard ages. It suggests that the method is less speculative and more usable than those which discount projected future market revenues. It is really a depreciation model not a valuation model. As such it seems not to have direct application in tree appraisal but a) the use of discounting is well explained (see threads @ and ) and the notion of value peaking and then declining may be useful in understanding depreciation.

One particularly interesting thing is that rather significant changes in interest rate and asset life had rather insignificant effects on unit cost of production. Intuitively I think that whether there is a significant effect on value will of course depend on the units of revenue. But assuming some relatively constant or typical gross revenue stream that might mean relatively small effects of net revenue and therefore value. This may have some implications for how heavily we depreciate by Species, Condition and Location factors. Another topic for future research.

(Thanks to Steve Day for providing the article to me).

Reply to post by Scott Cullen, on August 23, 1999 at 07:29:47:

I referenced two threads but did not provide the URLs......

http://tree-tech.com/board/?topic=topic1&msg=622

http://tree-tech.com/board/?topic=topic1&msg=621

Reply to post by Scott, on August 23, 1999 at 07:29:47:

Correspondence indicates Hotelling's Rule underlies much of natural resource economics, but that it may have been set forth in a later artilce on exhaustible resources rather tah in the 1925 depreciation work. More to follow.

Reply to post by Scott, on August 23, 1999 at 07:37:42:

Well, some VERY CURSORY research indicates that Hotelling was prolific in both Economics and Statistics. His impact may have been as much in statistical methods as applicable to resource economics, business competition, political elections and more as to resources in particular. There is a distinction in his work or the things which followed from it between renewable & non-renewable (or exhaustable) resources. So a threshhold distinction in discussing the urban forest is whether it is renewable or not. On a system scale I'd guess it is, at least if properly managed. The total output of the system can be maintained on a fairly even level generation to generation with little wide fluctuation. On a single tree scale, you might suggest that a large tree is not renewable except with a prolonged decrease in output. The next generation might enjoy it but the intergenerational output is gone.

To complicate the analysis is the issue of property rights. The individual owner has the right to terminate the output stream because he/she sees no value or is willing to sacrifice it for other benefits. Whether those rights are encumbered by community rights is a fact in an appraisal analysis. Establishing or advocating such rights is not part of the analysis. We've gone into this in VALUE threads on multiple beneficiaries and scope of analysis.

In short, Hotelling may have some application to single tree analysis but it would require a lot of further research. The most obvious application is to wide scale/scope resources particularly if publically owned or regulated.