Cost-Sharing and Private Timber Stand Improvements: A Two-Step Approach

The effects of cost-sharing and technical assistance on nonindustrial private forest owners' investment in timber stand improvements are analyzed using a two-step estimation method. We use survey data on Finnish NIPF owners' stand improvements, including precommercial thinnings and cleaning of seedling stands as well as restoration thinnings of overstocked juvenile stands in 1994-1998. The investment decision is theoretically considered in a two-period consumption-savings model with amenity values. To allow for the joint determination of participation in the cost-sharing program and the decision to invest, a two-step estimation method is used. The predicted probability of using public subsidy from the first-step model is included in the second-step model explaining the probability or relative extent of stand improvements. For robust inference, a quasi-maximum likelihood estimation technique and the Murphy-Topel correction are applied. Both public subsidy, personal assistance and forest planning expectedly increased the probability to invest. Especially public subsidy had substantial effects on the probability as well as extent of stand improvement. Besides overcoming the endogeneity of cost-sharing, the two-step approach showed that personal assistance also encourages stand improvements indirectly through its effect on the use of public subsidy

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Scandinavian Forest Economics: Proceedings of the Biennial Meeting of the Scandinavian Society of Forest Economics
2004, Number 40
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