Government Support of Nonindustrial Production: The Case of Private Forests

the Forest Incentives Program (FIP) was authorized by Congress in 1973. Under this program up to 75% of all tree planting and timber improvement costs incurred by private landowners are paid by the federal government. The advisability of this as well as similar statewide programs have been a topic of considerable debate in the literature. Using the results of an extensive Forest Service survey, Mills and Cain [8; 9; 10] find considerable evidence that the productivity benefits and financial returns from FIP-related timber improvements are quite high. In a recent econometric study, however, Wallace and Silver [13] find little evidence of any harvesting and subsequent resforestation effort due to cost sharing. The purpose of the present study is to examine the impact of programs such as FIP on the supply of timber and to explain how seemingly contradictory findings such as those above are possible. At the same time we wish to analyze the effectiveness of technological information provided to landowners by extension foresters and compare its impact on timber improvement and harvest activities with that of cost sharing. After briefly describing the characteristics of nonindustrial forests in Section II, we construct a model in Section III whereby nonindustrial private producers maximize their utility from both the timber and non-timber growing uses of the land. Although such models have been constructed before by Binkley [2], ours is unique in explicitly accounting