Testing the forest rotation model: Evidence from panel data

Abstract

The effects on harvesting decisions of intertemporal and parametric changes in prices and forest owners' nonforest income are investigated using panel data. A behavioral timber supply function is derived using a utility-based rotation model, where the forest owner decides an optimal harvesting date for an even-aged stand simultaneously with his optimal life cycle consumption and savings. Capital markets are perfect and forests are valued in situ. The effects of intertemporal changes in the exogenous variables on the annual harvest are estimated using a fixed-effects tobit model and a sample of 119 Finnish farmer-forest owners in 1982-1991. The intertemporal effect on supply of timber price is positive while the effect of nonforest income is negative. The parametric effects of price and income levels on life cycle harvest, as measured by the average annual harvest per hectare over the sample period, are studied by using the estimated fixed effects and the individual sample means of exogenous variables. The parametric effect of the timber price level is negative and that of nonforestry income level positive. These signs are predicted by the utility-based rotation model, provided forests are valued in situ and the average harvest age is lower than that of maximum sustainable yield.