Sticks, Carrots, and Reforestation Investment

Environmental regulations and public financial assistance programs are the typical “sticks” and “carrots” facing non-industrial private forest (NIPF) landowners in the U.S. This paper presents a theoretical framework and empirical evidence on the impacts of the Endangered Species Act and public financial assistance programs–cost-share programs and a tax incentive program–on reforestation investment behavior. The results indicate that NIPF landowners’ reforestation investments are influenced negatively by environmental regulations and positively by public financial assistance programs. The results imply that both sticks and carrots can be used simultaneously to influence NIPF landowners’ reforestation behavior. (JEL Q23)