show that agro-forestry can increase
the productivity of the forest stand by about 10%.
During the agro-forestry management, the decision is made at discrete points in time. At each time
point, the current poplar timber prices and button mushroom prices are known with certainty while
prices in the future remain uncertain. We assume (1) prices are the only source of uncertainty; (2)
prices at different time points are statistically uncorrelated; and (3) the manager is risk neutral. It
has been proven that, under these assumptions in pure forest management, the optimal strategy is
to harvest the stand when the current timber prices are greater than an age-dependent reservation
price, the lowest acceptable price to harvest the forest (Lohmander, 1988a; Brazee and Mendelsohn,
1988). In this section, we show that such a harvest strategy remains optimal in agro-forestry which
composing poplar and button mushroom. In this integrated inter-plantation system, our objective is
to see how underwood planting affects the reservation price of poplar compared with pure forest; so
we calculate the optimal reservation price of timber in agro-forestry system and in pure poplar forest
respectively, using a stochastic dynamic programming model.