Timber Supply and Life Cycle Harvest of Nonindustrial Private Forest Owners: An Empirical Analysis of the Finnish Case

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Abstract
The timber supply and life cycle harvest of nonindustrial private forest owners is studied. Given a perfect capital market, optimal harvesting decisions depend on timber prices, the interest rate, and the merchantable timber stock. Under effective credit rationing, timber supply and the life cycle harvest become dependent on forest owners' preferences, i.e., timber supply and consumption decisions must be made simultaneously. Thus, the effect of the price of timber on short-term supply becomes ambiguous, and the interest rate only has a negative income effect. Further, because the harvest and consumption are decided simultaneously, supply is also affected by owner characteristics. The optimal life cycle harvest rate need not be constant, and the age of the owner is a relevant explanatory variable. The timber supply function is estimated using Finnish micro data from 1982 to 1985, and the Tobit model. The hypothesis of an imperfect capital market cannot be rejected as the owner characteristics, including the owner's age, have highly significant coefficients, although the estimated coefficient of the interest rate is positive. The positive effect of the interest rate may be due to the fact that the loans of the credit-rationed forest owners in the sample are relatively small, and the positive effect of the nonrationed forest owners dominates. However, the effects of other capital (or, e.g., amenities) market imperfections cannot be ruled out. For. Sci. 37(4):1011-1029.

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