ABSTRACT
This chapter provides a detailed analysis of timber harvest decisions under price uncertainty. In the presence of perfect capital markets and certainty, harvesting decisions of nonindustrial forest owners are independent from their consumption preferences. However, under future timber price uncertainty and risk aversion, harvesting decisions depend on the consumption preferences of forest owners. The chapter presents framework to be used and the assumptions and simplifications to be adopted, and characterizes timber supply under certainty and perfect capital markets, when the Fisherian separation theorem holds. It explores the timber supply effects of changes in the timing of taxes and of changes in the current and future tax base between various forest taxes. The chapter analyzes timber supply and policy implications of forest taxes under credit rationing, that is, relax the perfect capital market assumption in the sense that forest owners are assumed to be subject to a binding borrowing constraint in the capital market.
