Investment Behavior in the Context of 
“The South's Fourth Forest" 
The review draft of the South's fourth forest re- 
port identifies, on page 101, the low price elasticity 
of timber supply in the South as the central problem 
facing southern forestry. It further notes that this 
elasticity has remained low despite widespread 
economic opportunities to earn competitive rates of 
return on forestry investments. The report attributes 
this incongruity between opportunity and behavior 
to several market imperfections: 
1. Failure of the stumpage market price to reflect 
all benefits associated with forests, such as 
the provision of wildlife habitat, scenic beauty, 
and improvement of water quality; and all 
costs, such as the pollution resulting from the 
use of chemicals and fires. 
2. Short time-preference of individual landown- 
ers, which constrains investments in manage- 
ment options yielding rewards after an extend- 
ed period of time. 
3. Lack of investment capital and market and 
management knowledge among private tim- 
ber owners. 
4. Ownership objectives that constrain timber 
production. 
5. Limited competition among timber buyers. 
The investment models developed in the above 
studies offer insights on items 2, 3, and 4. With 
respect to item 2, landowners have not exhibited a 
high degree of response to market signals, mea- 
sured either as stumpage prices or expected re- 
turns on investments. The fact that the highest sen- 
Sitivity is to pulpwood prices, rather than sawtimber 
prices, supports the notion that landowners may 
have planning horizons shorter than those neces- 
sary for many forestry investments. These short 
time-preferences may very well negate any effect of 
the attractive long-term returns offered by sawtim- 
ber rotations. 
With respect to item 3, several of the studies 
have isolated an income constraint, indicating that 
many southern landowners may not be in a financial 
position to consider an investment in forestry. The 
models further show that many landowners lack the 
management savvy to make a forestry investment. 
This is evident in the near universal finding of a 
significantly higher likelihood of investment among 
landowners assisted by professional foresters. 
The evidence of conflicting ownership objec- 
tives (item 4) is not as clear. Nontimber values are 
more likely to affect a harvesting decision than a 
decision to reforest. It is conceivable, however, that 
landowners might reject investment opportunities, 
such as plantation forestry, based on a desire to 
maintain a more natural stand. Perhaps more plau- 
sible is the notion that landowners reforest based 
on a feeling of obligation to keep their land produc- 
tive. The utility models of Boyd and Hyberg suggest 
that this latter scenario may be accurate. Another 
ownership objective conflicting with reforestation 
may be farming. Several studies show negative co- 
efficients for farmers, suggesting that farm and 
forestry operations may compete for investment 
capital. Additional research aimed at decisions 
such as the choice of harvesting method, choice of 
reforestation technique, and subgroup membership 
will be needed to verify possible competing motives. 
Following its contention that market failure oc- 
curs in southern timber supply, “The South's Fourth 
Forest" endorses increased public programs of fin- 
ancial assistance to improve forest productivity. The 
investment models are in general agreement that 
public programs increase forestry investment, but 
the limits of these findings must be clarified. Cost- 
sharing and tax incentives yield positive and signifi- 
cant coefficients in most of the investment models. 
This indicates that some of the credit for increased 
planting in the South in recent years belongs to 
public financial incentives. These findings further 
imply that if we choose to continue programs like 
reforestation tax incentives and cost-sharing, then 
landowners are likely to respond. What these mod- 
els do not tell us, however, is whether public dollars 
ought to be invested in southern forestry. Models of 
investment behavior are positive models, not nor- 
mative models; they tell us what /s, not what ought 
to be. Numerous studies have shown public forestry 
investments to be efficient from a program stand- 
point (cf. Gregerson 1979, Mills and Cain 1979, Ris- 
brudt and other 1983), but no study has demon- 
strated the social efficiency of public forestry 
initiatives. 
The decision to intervene in the market thus 
hinges on whether timber markets are deemed im- 
perfect. Until foresters make this judgment, the pru- 
dent course of action seems to be to heed the evi- 
dence that market signals are not eliciting adequate 
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