ABSTRACT

Critics of current and historical trends in timber production contend that private owners cut their woods more quickly than optimal, while public managers cut their forests more slowly than optimal. Using the Douglas fir industry, this chapter shows that private entrepreneurs holding rational expectations with respect to future prices have historically been discounting the future at a real rate of 5 percent, a much lower rate than that available for other private investments, and, therefore, that these owners have not cut their forests prematurely. It describes the time period of the model, the relation of profits to supply at expected prices, and the formation of price expectations. The chapter discusses the estimation of the demand equations and describes the producer's profit functions which are built from a linear model of biological growth of Douglas fir. It presents the estimation of the supply equation and the test of the hypothesis that private owners cut their timber prematurely.