This paper distinguishes between the hypothesis that the Victorian government developed a reputation for easy renewal of timber rights, so that the lack of clearly defined site sizes and the short-term nature of these rights did not matter, and the hypothesis that tenure and site size as written in law was the major determinant. A model of a firm's investment choice when there is uncertain tenure is developed to examine the effect of changes in the tenure prospect on capital intensity. The predictions of this model are then used to assess the competing hypotheses with reference to data on capital labour ratios and legislation regarding tenure and site size laws in Victoria and Tasmania from 1890 to 1927.