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

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The effects of cost-sharing and information 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 nonindustrial private forestland owners’ stand improvements in 1994–1998, including precommercial thinnings, cleaning of seedling stands, and restoration thinnings of juvenile stands. The investment decision is theoretically considered in a two-period 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 for the probability or relative extent of stand improvements. For robust inference, quasi-maximum likelihood estimation is applied. Public subsidy, personal assistance, and forest planning expectedly increased the probability of investing. Public subsidy especially had substantial effects on the probability and extent of stand improvements. 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.

Keywords: Forest policy instruments; nonindustrial private forest owners; probit model; tobit model; two-period model

Document Type: Research Article

Affiliations: 1: Ville Ovaskainen, Finnish Forest Research Institute, Unioninkatu 40 A, FIN-00170 Helsinki, Finland—Phone: +358 10 211 2226; Fax: +358 10 211 2104;, Email: 2: Harri Hänninen, Finnish Forest Research Institute, Unioninkatu 40 A, FIN-00170 Helsinki, Finland—, Email: 3: Jarmo Mikkola, Finnish Forest Research Institute, Unioninkatu 40 A, FIN-00170 Helsinki, Finland—, Email: 4: Emmi Lehtonen, University of Helsinki, Dept. of Forest Economics, PO Box 27, FIN-00014, Helsinki, Finland—, Email:

Publication date: January 1, 2006

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