Martin Faustmann was a German forester who is regarded as the father of forest economics.^[1] His 1849 analysis of the optimal rotation problem, often referred to as the Faustmann formula, remains in widespread use in natural resource valuation and policy analysis,^[2][3] and continues to be a topic of active research.^[4][3]

Faustmann studied Catholic theology at the University of Giessen for one semester in 1841 before turning to forestry.^[5] He completed his examinations in 1848 and became the chief forester of Dudenhofen near Darmstadt, where he remained until his death.^[2]

A foundational problem in the economics of forest management concerns the optimal age at which a stand should be harvested (i.e. whether it would be better to harvest and sell younger trees today, or wait for them to grow and obtain a larger timber sale revenue later).^[2]

The key insight of Faustmann's formula is that because timber is a renewable resource, it is not possible to answer this question by accounting for standing timber alone. Although the impatient forester receives a smaller payment by harvesting younger trees, they also gain the opportunity to re-plant sooner.^[2][4] In other words, if a patient forester chooses to let their stand grow for an additional decade, they might receive a much larger timber sale revenue, but at the cost of delaying the next rotation: after harvesting, they are left with bare land, while their impatient colleague now has 10-year-old-trees.

Faustmann's formula allows forest managers to consistently solve for the optimal harvest age given information about the growth rate of the stand, expected timber prices, and a discount rate.^[2] The formula circumvents the problem of infinite regress because it can be simplified and solved as a geometric series.^[6] Because it accounts for the time value of money (or the opportunity cost of delaying a harvest), the financially optimal Faustmann rotation is generally shorter than the biologically optimal rotation age.