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ARTICLE IN PRESS Journal of Forest Economics 14 (2008) 159–176 <a href=w w w . e l s e v i e r . d e / j f e Analyzing determinants of forest owners’ decision-making using a sample selection framework ( Stale Størdal , Gudbrand Lien , Sjur Baardsen Eastern Norway Research Institute, P.O. Box 223, NO-2601 Lillehammer, Norway Norwegian Agricultural Economics Research Institute, Oslo, Norway Department of Ecology and Natural Resource Management, ( Norwegian University of Life Sciences, As, Norway Received 13 December 2006; accepted 19 July 2007 Abstract A sample selection framework that simultaneously takes into account the two-step decision- making of forest owners (first whether or not to harvest, second the level of harvesting) is applied on representative cross-sectional data for forest properties and owners in Norway. Forest management plans, property size, forested area and income from agriculture are found to increase both the propensity to harvest and the harvesting levels. Income from engagement in other outfield-related productions and debt burden increase the propensity to harvest only, while increased age impact negatively on the harvesting decision. Wage income affects both propensities to harvest and harvesting levels negatively. The results suggest that other on- property productions may stimulate harvesting decisions, while off-property income impact harvesting decisions and levels negatively. r 2007 Elsevier GmbH. All rights reserved. JEL classification: D13; D24; Q23 Keywords: Forest owner behavior; Forestry; Harvesting decision; Simultaneous equations; Translog production function Corresponding author. E-mail address: Stale.Stordal@ostforsk.no (S. Størdal). 1104-6899/$ - see front matter r 2007 Elsevier GmbH. All rights reserved. doi: 1 0 . 1 0 1 6 / j . j f e . 2 0 0 7 . 0 7 . 0 0 1 " id="pdf-obj-0-2" src="pdf-obj-0-2.jpg">

ARTICLE IN PRESS

ARTICLE IN PRESS Journal of Forest Economics 14 (2008) 159–176 <a href=w w w . e l s e v i e r . d e / j f e Analyzing determinants of forest owners’ decision-making using a sample selection framework ( Stale Størdal , Gudbrand Lien , Sjur Baardsen Eastern Norway Research Institute, P.O. Box 223, NO-2601 Lillehammer, Norway Norwegian Agricultural Economics Research Institute, Oslo, Norway Department of Ecology and Natural Resource Management, ( Norwegian University of Life Sciences, As, Norway Received 13 December 2006; accepted 19 July 2007 Abstract A sample selection framework that simultaneously takes into account the two-step decision- making of forest owners (first whether or not to harvest, second the level of harvesting) is applied on representative cross-sectional data for forest properties and owners in Norway. Forest management plans, property size, forested area and income from agriculture are found to increase both the propensity to harvest and the harvesting levels. Income from engagement in other outfield-related productions and debt burden increase the propensity to harvest only, while increased age impact negatively on the harvesting decision. Wage income affects both propensities to harvest and harvesting levels negatively. The results suggest that other on- property productions may stimulate harvesting decisions, while off-property income impact harvesting decisions and levels negatively. r 2007 Elsevier GmbH. All rights reserved. JEL classification: D13; D24; Q23 Keywords: Forest owner behavior; Forestry; Harvesting decision; Simultaneous equations; Translog production function Corresponding author. E-mail address: Stale.Stordal@ostforsk.no (S. Størdal). 1104-6899/$ - see front matter r 2007 Elsevier GmbH. All rights reserved. doi: 1 0 . 1 0 1 6 / j . j f e . 2 0 0 7 . 0 7 . 0 0 1 " id="pdf-obj-0-6" src="pdf-obj-0-6.jpg">

Journal of Forest Economics 14 (2008) 159–176

ARTICLE IN PRESS Journal of Forest Economics 14 (2008) 159–176 <a href=w w w . e l s e v i e r . d e / j f e Analyzing determinants of forest owners’ decision-making using a sample selection framework ( Stale Størdal , Gudbrand Lien , Sjur Baardsen Eastern Norway Research Institute, P.O. Box 223, NO-2601 Lillehammer, Norway Norwegian Agricultural Economics Research Institute, Oslo, Norway Department of Ecology and Natural Resource Management, ( Norwegian University of Life Sciences, As, Norway Received 13 December 2006; accepted 19 July 2007 Abstract A sample selection framework that simultaneously takes into account the two-step decision- making of forest owners (first whether or not to harvest, second the level of harvesting) is applied on representative cross-sectional data for forest properties and owners in Norway. Forest management plans, property size, forested area and income from agriculture are found to increase both the propensity to harvest and the harvesting levels. Income from engagement in other outfield-related productions and debt burden increase the propensity to harvest only, while increased age impact negatively on the harvesting decision. Wage income affects both propensities to harvest and harvesting levels negatively. The results suggest that other on- property productions may stimulate harvesting decisions, while off-property income impact harvesting decisions and levels negatively. r 2007 Elsevier GmbH. All rights reserved. JEL classification: D13; D24; Q23 Keywords: Forest owner behavior; Forestry; Harvesting decision; Simultaneous equations; Translog production function Corresponding author. E-mail address: Stale.Stordal@ostforsk.no (S. Størdal). 1104-6899/$ - see front matter r 2007 Elsevier GmbH. All rights reserved. doi: 1 0 . 1 0 1 6 / j . j f e . 2 0 0 7 . 0 7 . 0 0 1 " id="pdf-obj-0-10" src="pdf-obj-0-10.jpg">

Analyzing determinants of forest owners’ decision-making using a sample selection framework

(

Stale

Størdal a, , Gudbrand Lien a,b , Sjur Baardsen a,c

a Eastern Norway Research Institute, P.O. Box 223, NO-2601 Lillehammer, Norway

b Norwegian Agricultural Economics Research Institute, Oslo, Norway

c Department of Ecology and Natural Resource Management,

(

Norwegian University of Life Sciences, As, Norway

Received 13 December 2006; accepted 19 July 2007

Abstract

A sample selection framework that simultaneously takes into account the two-step decision-

making of forest owners (first whether or not to harvest, second the level of harvesting) is

applied on representative cross-sectional data for forest properties and owners in Norway.

Forest management plans, property size, forested area and income from agriculture are found

to increase both the propensity to harvest and the harvesting levels. Income from engagement

in other outfield-related productions and debt burden increase the propensity to harvest only,

while increased age impact negatively on the harvesting decision. Wage income affects both

propensities to harvest and harvesting levels negatively. The results suggest that other on-

property productions may stimulate harvesting decisions, while off-property income impact

harvesting decisions and levels negatively.

r 2007 Elsevier GmbH. All rights reserved.

JEL classification: D13; D24; Q23

Keywords: Forest owner behavior; Forestry; Harvesting decision; Simultaneous equations;

Translog production function

Corresponding author. E-mail address: Stale.Stordal@ostforsk.no (S. Størdal).

1104-6899/$ - see front matter r 2007 Elsevier GmbH. All rights reserved.

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Introduction

Numerous studies have analyzed the harvesting behavior of nonindustrial private forest owners (NIPFs) the last decades (see for reviews, Amacher et al., 2003; Cubbage et al., 2003; Beach et al., 2005). A common interpretation is that since NIPFs operate in incomplete markets, their subjective preferences and idiosyncratic characteristics will alter the harvesting decision, commonly modeled within utility- maximizing frameworks (e.g. Max and Lehman, 1988; Hyberg and Holthausen, 1989; Kuuluvainen et al., 1996). Prices and costs, though still important, will therefore be only two out of many variables affecting the timber supply. Many studies have concerned to what degree nonmarket timber (and nontimber) amenities impact negatively on harvesting as they are assumed to be utility- increasing for the forest owner (e.g. Pattanayak et al., 2002). In addition, previous studies have also shown an impact from nonforest income on harvesting. As other income sources on- and off-property have gained importance, possible negative impacts of timber supply have been a major concern arising from the fact that forest income has become more marginal to NIPFs household economies. Kuuluvainen and Tahvonen (1999) found that nonforest income had a negative impact on harvesting. They note that wealthy forest owners can afford more financial loss in order to enjoy nontimber benefits than owners with low nontimber income. Other empirical studies (e.g. Kuuluvainen et al., 1996) have found no significant impact from the owners’ exogenous income on harvesting. There is probably a difference between the impacts on harvesting from off- property income and income from other sources at the property. Off-property (wage) income may be assumed not to conflict timber production as they are not interrelated, while on-property productions might. However, evidence from previous studies of NIPF behavior suggests that harvesting decisions are influenced both by nontimber production on the properties (Kuuluvainen et al., 1996), and off-property (wage) income (Løyland et al., 1995; Kuuluvainen and Tahvonen, 1999). Conway et al. (2003) pointed on the negative impact on both harvesting and nontimber activities from landowners who do not live on the property (absentee owners), and explain this with absentee landowners possessing perhaps less information with regard to harvesting than resident owners. This is also in accordance with the findings of Løyland et al. (1995). Conway et al. (2003) conclude that variables like debt, nontimber activities and the owners’ harvesting behavior are related. Previous studies have, however, not attempted to test the impact on harvesting from various types of on- and off-property exogenous income. 1 Most previous empirical studies on NIPFs harvesting behavior have applied various versions of discrete choice models. However, in line with the decision whether or not to harvest, also the harvest intensity depends on various property and

1 Bolkesjø and Baardsen (2002) may be viewed as an exception. However, they found diverging results in their different models as other income and agricultural income affected harvesting behavior negatively in one model, while in another model they could not reject the null hypothesis that these variables had no or positive impact. Further they did not distinguish between other income on-property and off-property.

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owner characteristics (Vokoun et al., 2006), and both factors are likely to impact timber supply. Wear and Parks (1994) state that the timber supply consists of two parts: a timber production function (which describes how inputs are converted into outputs) and the forest manager’s objective function, which is often guided by utility rather than profit maximization. We posit that NIPF decision-making should be modeled in two, probably simultaneous, steps; first decide whether or not to harvest, second decide upon the level of harvesting. Acknowledging that the analyst observes only owners that harvest, many studies have applied censored regression (tobit) models in order to analyze impact on harvesting levels from idiosyncratic characteristics (e.g. Kuuluvainen and Tahvonen, 1999; Bolkesjø and Solberg, 2003). In the present paper, it is attempted to explain why owners choose to harvest in the first place, and second what determines the level of harvesting. By doing this one runs into the problem of truncated data. In the first step a forest owner will choose to harvest if the timber price, or utility from harvesting, exceeds a certain threshold level (for example the reservation price, which again may be influenced by owner and property characteristics). In the second step, the amount of timber supplied (to a given price) depends on both the owner-specific production function and various owner and property attributes. Since the analyst is only able to observe the actual production function of owners who are harvesting (and thus inferring that the utility from harvesting exceeds a certain threshold value) the sample is truncated. One way to cope with this, and which is chosen in this paper, is to apply a sample selection framework. Thus, we account for the fact that the harvesting level depends on the propensity to harvest, at the same time as we account for the joint distribution of disturbances which may occur from sample selection bias. In the present paper we address the questions: How does income from various sources outside forestry affect the decision of whether or not to harvest, and second, how does such income affect the level of harvesting once the forest owner has decided to cut? Two equations are estimated simultaneously in a full information maximum likelihood (FIML) sample selection framework: first a selection (probit) equation explains the decision to harvest and, second, a production function explains the level of harvesting. The paper is organized as follows. In the next section, we explain the materials used in the study and derive a simple model for forest owners’ harvesting behavior in a sample selection framework and present the econometric model. Then, we present the estimation results utilizing a large set of cross-sectional data of Norwegian forest owners, before we discuss our findings and give some policy implications of the study.

Materials and methods

Model outline

Elements in the utility function of the forest owner are decisive whether or not to harvest. However, when it comes to the determination of the level of harvesting, a

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production function approach that takes elements of owner and property charac- teristics into account must be employed. The modeling approaches to this decision process are given in a large number of previous studies (e.g., see for reviews, Max and Lehman, 1988; Hyberg and Holthausen, 1989; Kuuluvainen et al., 1996; Prestemon and Wear, 2000; Beach et al., 2005). Most often the harvesting decision is viewed as an intertemporal problem, i.e., the owner will harvest today if the marginal utility is larger than the discounted marginal utility of harvesting tomorrow. In this paper, we measure more specifically the impact of having various sources of on- and off-property exogenous income on timber supply using a sample selection framework (Heckman, 1979; Greene, 2003). This approach assumes a joint normal distribution between errors of the selection equation (harvest/no harvest) and the regression equation of interest (the measure of harvesting level). Sample selection frameworks have previously been used in studies of contracting in agriculture (e.g. Bierlen et al., 1999; Key, 2005; Key and McBride, 2003) and in forestry by Kline et al. (2004) in order to examine the likelihood of tree planting after harvesting. In a first step the nth forest owner’s decision whether or not to harvest can be expressed with the latent variable

z n ¼ U n;T ð1 þ rÞ 1 U

0

0

n;T þ1 ,

(1)

where r is the (subjective) rate of interest. If the forest owner harvests, we assume that the marginal utility to a forest owner from harvesting today (U T 0 is larger than the discounted marginal utility of harvesting tomorrow, (1+r) 1 U T 0 þ1 and the latent variable is positive. However, we are not able to observe the magnitude of z n only its sign. Therefore, in the first step, we have to reformulate Eq. (1) into a probit equation:

z n ¼ a 0 w n þ m n ;

where z n ¼ 1 if

z n 40;

0 otherwise;

Probðz n ¼ 1Þ ¼ Fða 0 w n Þ;

Probðz n ¼ 0Þ ¼ 1 Fða 0 w n Þ;

(2)

where w n is a vector of property and owner characteristics, and F is the cdf of the standard normal distribution. In the next step, the level of harvesting will depend on available technology (combination of inputs which yields the most efficient output):

y n ¼ b 0 x n þ c 0 w n þ n ;

observed only if

z n ¼ 1,

(3)

where x n is a vector of both exogenous and endogenous inputs in the chosen harvesting technology. We assume that r ¼ Corrðm n ; n Þ , and thus the disturbances (m n ,e n ) bivariate normal [0,0,1,s e ,r]. Since the decision process is characterized by two steps the modeling approach may favor a two-step procedure as the one used by Løyland et al. (1995). They employed a twin linear probability model (Fisher, 1962; Cragg, 1971) by first estimating the propensity to harvest with a Probit-technique and next analyzing only active forest owners by OLS. However, because the sample rule is that z n is observed only if z n 40 we will face the problem of selection bias (since we can view the problem as an omitted variable) and OLS would produce inconsistent estimates of the parameters (Greene, 2003, p. 783). In order to overcome this bias Heckman (1979) introduced a consistent estimator for the linear model (see also Greene, 1981),

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which is a two-step procedure based on the fact that

E ½y n jx n ; w n ; z n ¼ 1 ¼ b 0 x n þ c 0 w n þ E ½ n jz n ¼ 1 ¼ b 0 x n þ c 0 w n þ yM n , (4)

where y ¼ rs ; M n ¼ fða 0 w n Þ=Fða 0 w n Þ; and f( ) and F(

) are the pdf and cdf,

respectively, of the standard normal distribution. In the first step a in Eq. (2) is estimated by probit followed by computation of M n (i.e. the inverse Mill’s ratio) for all observations where z n equals 1. In the second step (b,c,y) is estimated by linear regression of y n on x n , w n and M n . Heckman’s model is consistent albeit not efficient since the error term in Eq. (4) is heteroscedastic (Puhani, 2000; Greene, 2006). Therefore, FIML of (a,b,c,r,s) can be employed based on the joint distribution of observations (z n ¼ 0,w n ) and (z n ¼ 1,w n , x n ) where the Heckman estimates are used as initial values. The FIML estimates are efficient compared to those obtained from the Heckman procedure (Key and McBride, 2003). Since some of the inputs may be endogenous, additional equations in a simulta- neous equations framework have to be introduced (Amemiya, 1978). Thus, a system

of equations, involving y n and the endogenous inputs, is constructed:

y n ¼ b 0 x n þ c 0 w n þ yn , x n;i ¼ d 0 x n;j þ b y y n þ k 0 w n þ xn , i aj .

ð5Þ

The procedure is first to estimate the selection equation, then to estimate each equation in reduced form and keep predicted (fitted) values, and estimate the structural equations with fitted values of endogenous input (and y) as instrument variables. Eventually, original data are used to compute the estimate of the disturbance variance (Lee et al., 1980).

Data and econometric model specification

Assuming technical efficiency and that a translog production function is suitable to approximate the harvesting technology, the level of harvesting of the nth forest owner can be specified as

log y n ¼ b 0 þ X b i log x ni þ

i

1

2

X

i

X

j

b ij log x ni log x nj þ X g k w nk þ n ,

k

(6)

where b ij ¼ b ji , x ni and x nj refer to the inputs (i,j ¼ labor, area cut, forest capital), w nk are exogenous intercept shifters idiosyncratic to the nth forest owner, and e n is an IIDð0; s 2 Þ error term. Forest capital input is assumed to be exogenous to the harvesting level. This variable will in the short-run be unaffected by the level of harvesting. However, in the long run the maximum sustainable yield (MSY) and then forest capital may be affected negatively by ‘‘over-harvesting’’. Labor and forest area cut were, on the contrary, supposed to be endogenous to the harvesting decision. A higher level of harvesting will yield both more area cut as well as it will demand more labor, cet. par.

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These variables were therefore estimated in a simultaneous equations framework with Eq. (2) as follows:

log y n ¼ b 0 þ X b i log x ni þ

i

1

2

X

i

X

j

b ij log x ni log x nj þ X g k w nk þ ny ,

k

log

x

n1

¼

d

01

þ d 2 log

x

n2

þ d y1

log

y

n

þ X

k

l 1k w nk

þ nx1 ,

log

x n2 ¼ d 02

þ d 1 log

x

n1

þ d 2y

log

y n þ X

k

l 2k w nk

þ nx2 ,

i ; j ¼ 1; 2; 3.

ð7Þ

All inputs and the output of the production function were divided by their sample means. The corresponding first-order coefficients are thus estimates of the respective elasticities evaluated at means. We have applied the model to individual cross-section data of 8542 forest owners extracted from the 2004 Sample Survey of Agriculture and Forestry. The cross- section includes data from a postal survey linked to the tax register, to the harvesting register, and to a register of active farmers (administered by the Norwegian Agricultural Authority), the latter including each farmer’s stocking and cropping details. All data represent the year 2003, though information about harvesting levels is given for both years 2003 and 2004. The specification of the variables in the selection equation (2) and the simultaneous equation production function system (7) is given in Table 1. Using only complete observations produces biased results unless observations are missing completely at random. There is also a loss of precision as the sample size is reduced (Hair et al., 2006). A thorough discussion on data imputation techniques in the forestry literature are given in, e.g., Reams and McCollum (1999). Even though we wanted to make the procedure for imputing data as simple as possible, different variables needed different imputation procedures given various property characteristics. The labor variable (x 1 ) was calculated as the sum of hours worked by contractors and hours worked by the owner, his family or hired labor in 2003, the latter calculated as contractor equivalent hours, i.e., the amount of hours an average contractor would have used to cut and haul the specific amount of timber. The data set gave no information of hours worked by contractors so these were estimated as the total costs in NOK involved with contractor work divided by 1925 NOK/h. The latter is an estimate of costs per hour of contractors given as the sum of 1175 NOK/h for harvester and 750 NOK/h for forwarder (Eid and Hoen, 2005). Forest area cut (x 2 ) expresses the area in hectares of various types of final fellings in 2003. Area cut is closely related to the quantity cut on each property. Therefore, in the cases where information of area cut were not given (457 properties) we replaced missing values by dividing the quantity cut for the property with mean area per m 3 cut from the total sample. The capital input (x 3 ) is an estimate of the value of the increment from the forest and is an expression of the choice faced by the forest owner as the increment can

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Table 1. Variable specification

165

Selection equation variables

Production variables

Total area of the property (ha)

Share of productive forest relative to total area

Forest owner’s age (years) for NIPF owners

x 1 (labor input in hours)

x 2 (hectares forest area cut)

x 3 (forest capital input in NOK a )

Income from other outfield-related productions (NOK a

1000)

Income from agriculture (NOK a 1000) for NIPF owners

Wage income (NOK a 1000) for NIPF owners

Debt (NOK a 1,000,000) for NIPF owners

Dummy for forest management

Dummy for location near urban areas

Dummy for education at bachelor’s level or higher

a 1 NOK ¼ 0.155 USD per 1 November 2006.

either be cut today and its revenue spent on alternative investments (or on consumption), or harvesting may be postponed if this is the optimal choice of the owner. The variable was calculated as the mean weighted price of various timber grades sold in 2003 multiplied by the MSY of the property’s forest resources (which is the amount of timber that might be cut without decreasing future harvesting opportunities). Using weighted mean price also adjusts for the timber quality (and thus variation in valuation) of the property, which may vary significantly. For a few properties there was no information of value from timber sales from the official harvesting register. In those cases we chose to replace mean weighted price with the mean value of the sample. Information about MSY was available from only 3983 (46.6%) of the properties. Replacing with mean values is not a good approach as the MSY is closely related to the size of the property. Consequently, small wood lots will get too high and larger properties too low MSY when replacing missing values with arithmetic means. We therefore chose to estimate an OLS model on the forest properties where we had information on MSY, and then on the basis of coefficient estimates, we calculated a hypothetical MSY for the missing data. The model used was MSY ¼ f(Productive forest area, Fellings in 2004, Fellings in 2003), (R 2 ¼ 0.87). Previous empirical studies of NIPF behavior have shown that owner and property characteristics have to be taken into account when modeling harvesting behavior. In this study, we are especially interested in how various income sources on- and off- property (wage income off-property, income from agriculture, and income from other outfield-related productions at the property) impact harvesting. However, also other variables are likely to impact harvesting levels and should be included in the model. Human capital influence on harvesting behavior is represented by the variables age of the forest owner, dummy variable for education and dummy variable for forest management plan. Age of the owner is included in most micro-data studies, and in several analyses found to have a significant negative impact on harvesting, although

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it has no a priori hypothesized effect (Kuuluvainen and Salo, 1991; Løyland et al., 1995; Kuuluvainen et al., 1996; Kuuluvainen and Tahvonen, 1999). However, older owners may have other bequest motives (Conway et al., 2003) or attitudes toward debt (Fina et al., 2001) which may affect harvesting. Increasing age is also found to decrease the owners’ technical efficiency in timber production (Lien et al., 2007). A dummy ( ¼ 1) for education is imposed for owners with Bachelor’s degree or higher. Previous studies (e.g. Løyland et al., 1995) have found education to impact positively on the harvesting decision. A dummy ( ¼ 1) is also imposed for properties having a forest management plan. This is assumed to have a positive impact on the harvesting behavior as it gives the owner larger information about the property’s resources. A positive impact is also found in previous empirical studies (Løyland et al., 1995; Kuuluvainen and Tahvonen, 1999; Lien et al., 2007). Debt and location of the property are socioeconomic attributes that may influence the owners’ behavior. Debt is probably a good proxy for the owners’ subjective interest rate as increasing debt induces owners to value money today more than money tomorrow (because of imperfect capital markets), so that owners with large debt have a higher subjective interest rate than owner without debt. This applies directly to the intertemporal decision forest owners make (Eq. (1)), and thus forest owners with a high debt burden are more likely to harvest. The effect of debt is analytically derived in Fina et al. (2001) who also argue that owners with mature timber are more sensitive to debt, though on the other hand the value of amenities can work in the other direction. Previous empirical studies (e.g., Conway et al., 2003) have found increasing debt level to impact positively on the harvesting decision. A dummy ( ¼ 1) is imposed on properties located on or near urban areas (defined as situated closer than 75 min of travel distance from a town larger than 50,000 inhabitants). Properties near urban areas are previously found to have different harvesting behavior than properties located in more peripheral areas. Munn et al. (2002) found for example that the probability of harvesting decreases with decreasing distance to urban areas, while Størdal et al. (2004) found that remote regions experience relatively higher harvesting levels in ‘‘boom’’ periods. The property characteristics total area and share of productive forest relative to total area are likely to impact the harvesting decision. The use of share in the latter characteristic was done in order to avoid collinearity problems between the variables during estimation. Hyberg and Holthausen (1989) found in an analysis of landowners in Georgia, USA that both the size of the landowners’ property and the amount of forested area were positively related to timber harvesting. A positive relationship between the size of forestland and harvesting is also found by Kuuluvainen and Tahvonen (1999) and Munn et al. (2002). Vokoun et al. (2006) find, however, that owners with larger forested parcels are likely to harvest relatively less intensive when they enter the timber market. Some of the owners lacked a personal number. These are most likely to be industrial or public forest owners. For these owners there was no information about age (explaining the missing value for this variable), wage income, income from agriculture and debt. Information was, however, available for income from other outfield-related productions at the property. In order to overcome the problem of

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missing values for these owners we defined a dummy ( ¼ 1) for owners with a

personal number (i.e. NIPF owners) and interacted this with the four variables

discussed above. The variables are therefore slope shifters and their coefficients show

the impact on harvesting for these variables for NIPF owners only.

Regarding the variables age, debt, wage income and agricultural income we were

missing observations for those properties owned by industrial private or public.

Prior to estimation these variables were interacted with a NIPF-dummy so that they

have the value 0 during estimation.

As in several previous studies (e.g. Goodwin and Mishra, 2004; Lien et al., 2006;

Nehring et al., 2006) each observation is imposed a replication weight. Hundred and

forty-four strata were defined as each of the 18 counties was divided into 8 area

classes. 2 Different samples were drawn from the population of forest owners,

ranging from 2.5% in the smallest area class to 100% in the largest ones. The

resulting gross sample yielded a total of 9136 forest owners (of which 8542 was the

net sample). On the basis of the share of population drawn in each stratum a

replication weight was calculated for each property. The replication weight, for each

stratum, takes into account the ratio between the number of properties in the total

population and the sample, the productive forest area of each property in the sample,

the sample and population mean forest area, and the variation of property size in the

sample, according to the following equation:

r n;h ¼

P h

p h

1

ða n;h h Þðh A ¯ h Þ

Þ 2 ! ,

ð1=p h Þ P n2h ða n;h h

(8)

where r n ,h is the replication weight of property n in stratum h, P h the total population

of properties in stratum h, p h the number of properties in the sample in stratum h,

a n , h the productive forest area for property n in stratum h, A ¯ h the arithmetic mean

productive forest area for the total population of properties in stratum h, and h

arithmetic mean productive forest area for the sample of properties in stratum h.

Thus, in the largest area classes the data were imposed a replication weight equal

to one as all properties were included into the sample, while in smaller area classes

the replication weight was larger than unity. 3 The sum of replication weights was

equal to the total population of 118,512 forest properties in Norway with a

productive forest area larger than 2.5 ha. A closer description of the data and the

sampling procedure is presented in Statistics Norway (2004).

Table 2 gives some descriptive statistics of the data. The sample with replication

weight imposed is supposed to approximate the total population of forest properties

in Norway and their characteristics. Before imposed a replication weight the sample

2 The area classes in hectares are: 2.5–9.9; 10.0–24.9; 25.0–49.9; 50.0–99.9; 100.0–199.9; 200.0–499.9; 500.0–1999.9; 2000 – above. 3 The replication weight ranges from 0.3515 to 67.4974. The reason why some weights are less than unity is that some 150 properties in the sample had the same owner and were located in the same municipality. In order to get a better approximation the merged properties were given a replication weight equal to calculated weight divided by the number of merged properties. Thus, a large property from a merger of two properties might be given a weight equal to 1/2 ¼ 0.5.

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Table 2. Descriptive statistics of variables used

 

Mean

Mean of

Minimum

Maximum

Standard

of

sample after

replicated

replicated

deviation

sample

replication

sample

sample

replicated

 

sample

Harvesting, m 3

379.3

60.5

0

46,068

496.5

Labor input in hours a

58.0

21.9

0.13

2632

64.2

Hectares forest area

6.0

2.5

0.01

229.0

7.0

cut a

Forest capital input

313.7

105.2

1.48

16,186

359.8

(NOK 1000) a,b

Total area of the

1226

160

2.5

970,406

4808

property, ha

Share of productive

  • 0.74 0.76

0.7 E 5

1.0

0.29

forest relative to total

area

Forest owner’s age

  • 50.6 54.4

0

96

15.6

(years)

Income from other

  • 33.0 5.4

0

11,814

95.6

outfield-related

productions (NOK b

1000)

Income from

  • 47.6 42.2

0

2488

104.7

agriculture (NOK b

1000)

Wage income (NOK b

250.4

256.6

0

3999

269.3

1000)

Debt (NOK b

  • 0.92 0.61

0

132.0

1.38

1,000,000) for NIPF

owners

Dummy for forest

  • 0.49 0.29

0

1.0

0.46

management

Dummy for location

  • 0.37 0.42

0

1.0

0.49

near urban areas

Dummy for education

  • 0.21 0.17

0

1.0

0.38

at bachelor’s level or

higher

Note: Sample size ¼ 8542/118,512 before/after replication. a Figures for owners who conducted harvesting. b 1 NOK ¼ 0.155 USD per 1 November 2006.

shows a bias towards larger properties which harvest more, owners that are

somewhat younger, have more income from other outfield-related productions and

who have slightly lower wage incomes. The sample has also, on average, a higher

debt burden, is more likely to have a forest management plan, less frequently located

near urban areas and is more likely to have higher education.

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169

One limitation of the study is worth mention. In their model of harvesting

behavior, Conway et al. (2003) corrected for unknown types of heteroscedastistiy

using White’s method. Even if the FIML approach gives efficient results compared

to Heckmans model, estimation results may be flawed by heteroscedasticity. Since

we are using a simultaneous equation approach, an algorithm adjusting for hetero-

scedasticity is, to the best of our knowledge, not readily available. The effect

of heteroscedastisity is, however, reduced to a certain degree as the translog specifi-

cation uses logarithmic transposed data.

Estimation results

The sample selection modeling framework is applied on both unweighted data (i.e.

the original sample), and on data imposed a replication weight in order to

approximate the total population of forest properties in Norway.

The estimates of the translog production function in the simultaneous equations

framework are shown for unweighted and weighted data in Tables 3 and 4,

respectively. The coefficients to the left refer to the (first step) probit selection

equations, i.e., the owners’ propensity to harvest, while the coefficients to the right

refer to the production function. Model tests show a significant correlation between

the selection function and the production function. Also chi-squared statistics for

regressions were tested and found significant for both models.

For most variables the sign and magnitude are approximately the same in the

unweighted regression compared with the one imposed a replication weight. The

exception is that the dummies for location are found negatively and education

positively affecting the harvesting level in the sample imposed a replication

weight.

Variables affecting the decision whether or not to harvest

The first step, i.e. the selection function, contains the determination variables

affecting the decision of whether or not to harvest. The dependent variable equaled

one if the forest owners harvested in 2003, and zero otherwise.

The variables forest management plan, total area, share of productive forest area

relative to total area, income from other outfield-related productions, NIPF

agricultural income, debt level, and education on Bachelor’s level or higher all

increased the propensity to harvest. NIPF age and NIPF wage income decreased, on

the other side, the propensity. Location of the property close to urban areas was not

found to have any significant impact in neither of the models.

Variables affecting the level of harvesting

In the second step of the procedure, we attempted to determine variables that

affected the level of harvesting. In doing so a translog functional form specification

170

S. Størdal et al. / Journal of Forest Economics 14 (2008) 159–176

ARTICLE IN PRESS

Table 3. FIML estimates of selection and production functions, unweighted

Selection function

 

Production function

 

Constant

0.713*** (0.066)

Constant

0.231*** (0.027)

 

Forest

0.066*** (0.013)

 

management

plan

Forest

0.725***

(0.027)

LX1

0.887***

(0.007)

Total

area

1.5 E 7 (1.4 E 7 )

management

 

plan

Total

area

1.5 E 5 *** (3.7 E 6 )

LX2

0.098*** (0.006)

 

Share of

0.146*** (0.015)

 

productive

forest

Share of

0.384***

(0.051)

LX3

0.059***

(0.005)

NIPF age

1.7 E 4 * (2.0 E 4 )

productive

 

forest

NIPF age

0.006*** (0.001)

LX11

0.049*** (0.006)

 

Outfield

2.1 E 6 (8.3 E 6 )

 

income

Outfield

0.001***

(1.4 E 4 )

LX12

0.039*** (0.004)

 

NIPF

8.6 E 5 *** (2.6 E 5 )

income

agricultural

Income

NIPF

2.2 E 4 * (1.3 E 4 )

LX13

0.004 (0.005)

 

NIFP

wage

3.0 E 5 *** (0.1 E 4 )

agricultural

 

income

NIFP

wage

2.4 E 4 *** (5.3 E 5 )

LX22

0.039***

(0.006)

NIPF debt

0.002** (0.001)

NIPF debt

0.044*** (0.009)

LX23

0.012*** (0.005)

 

Location

0.015** (0.007)

Location

0.001 (0.028)

LX33

0.001 (0.005)

Education

0.007 (0.009)

Education

0.160*** (0.036)

 

s

(1)

0.194*** (0.005)

 

r

(1,2)

0.398*** (0.087)

 

F test w 20;3228 2

10,008.4***

Log-L

474.4

Note: ***Significant at 1%, ** at 5% and * at 10% level of significance; number of observations: 8542 in selection equation and 3249 in production function.

S. Størdal et al. / Journal of Forest Economics 14 (2008) 159–176

ARTICLE IN PRESS

171

Table 4. FIML estimates of the selection function and the production function, weighted with replication weight

Selection function

 

Production function

 

Constant

1.134*** (0.049)

Constant

0.179*** (0.047)

 

Forest

0.066*** (0.018)

 

management

plan

Forest

0.721***

(0.019)

LX1

0.887***

(0.010)

Total

area

3.5 E 8 (2.7 E 7 )

management

 

plan

Total

area

4.3 E 5 *** (8.5 E 6 )

LX2

0.118*** (0.009)

 

Share of

0.107*** (0.015)

 

productive

forest

Share of

0.246***

(0.035)

LX3

0.043***

(0.008)

NIPF age

1.3 E 3 (2.6 E 3 )

productive

 

forest

NIPF age

0.007*** (0.001)

LX11

0.043*** (0.006)

 

Outfield

2.7 E 6 (1.6 E 5 )

 

income

Outfield

0.001***

(1.6 E 4 )

LX12

0.045*** (0.005)

 

NIPF

8.4 E 5 *** (3.0 E 5 )

income

agricultural

Income

NIPF

0.001***

(9.4 E 5 )

LX13

0.017***

(0.006)

NIFP

wage

2.1 E 5 * (1.2 E 5 )

agricultural

 

income

NIFP

wage

7.5 E 5 ** (3.8 E 5 )

LX22

0.043***

(0.008)

NIPF debt

0.001 (0.001)

NIPF debt

0.019** (0.009)

LX23

0.017*** (0.005)

 

Location

0.012* (0.007)

Location

0.011 (0.019)

LX33

0.001 (0.006)

Education

0.016* (0.009)

Education

0.121*** (0.025)

 

s

(1)

0.180*** (0.006

 

r

(1,2)

0.268* (0.154)

 

F test w 20;3228 2

10,942.7***

Log-L

759.3

Note: ***Significant at 1%, ** at 5% and * at 10% level of significance; number of observations: 8542 in selection equation and 3249 in production function.

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was chosen to approximate the harvesting technology where (the logarithm of)

harvesting level in cubic meters formed the dependent variable.

In the production function labor showed the largest elasticity: 0.89 in both models;

area 0.10 in the unweighted model and 0.12 when a replication weight was imposed;

and capital 0.06 and 0.04 in the unweighted and weighted model, respectively. Once

possessing a forest management plan, the share of productive forest area and NIPF

agricultural income were both found to work positively, while NIPF wage income

and location near urban areas worked negatively, affecting the level of harvesting at

10% level in both models. NIPF debt level was found to affect the level of harvesting

positively in the unweighted model, while it was insignificant in the model imposed

a replication weight. Education level was found to affect the harvesting level signifi-

cantly positive in the weighted model, while it was insignificant in the unweighted

model.

Neither total area, NIPF age, nor income from other outfield-related productions

in the production model (step two) were found to affect the harvesting level

significantly in any of the two models.

Discussion and policy implications

In this study, we applied a two-step sample selection estimation procedure which

simultaneously took into account the two-step decision-making of forest owners;

first to decide whether or not to harvest and second to decide on the level of

harvesting. Since previous studies have provided knowledge of the inseparability

between production and consumption in NIPFs’ decision-making (Kuuluvainen

et al., 1996), idiosyncratic elements relevant for the harvesting decision were

incorporated both in the selection and in the production model. The results seem to

be consistent both for owners with relatively large properties (the unweighted

sample) and with the representative sample imposed a replication weight where the

properties are smaller on average. Dummies for education level and location near

urban areas are, however, found significant at the 10% level for the weighted sample

indicating that the choice of harvesting levels of owners with larger properties

(unweighted sample) is not so affected by his or her education level and location as

the average forest owner.

The selection model showed similar results to previous studies as variables NIPF

age and NIPF wage income were found to affect the selection process as well as the

production level negatively. The negative impact from age is found in almost all

previous studies (exceptions are e.g. Bolkesjø and Baardsen (2002) who found age to

be ambiguous to harvesting behavior), though not very much discussed. Different

bequest motives (Conway et al., 2003) compared to younger owners can be one

explanation for this result; another is that older owners may be semi-retired; further

is that younger owners also may have larger debt or facing large investments on the

property. Thus, increased harvesting may give these owners better liquidity. As debt

may also be viewed as a proxy for the owners’ subjective interest rate, owners with a

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173

high debt burden may value harvesting today higher than owners with a lower debt

burden. This applies directly to Eq. (1), and thus debt will increase the propensity to

harvest, cet. par. The positive impact of debt is supported by the results and is also

found in previous studies (e.g., Conway et al., 2003; Kuuluvainen and Tahvonen,

1999).

Education was found to positively impact the harvesting decision, though more

weakly when it comes to the level of harvesting since this effect is only significant for

the sample imposed a replication weight. Thus, the effect of education is not so clear

for larger properties. Except Løyland et al. (1995) the owners’ level of education has

in most previous studies of harvesting behavior not been used as an explanatory

variable. Still it is commonly used in analyses of agricultural production (e.g. Ahituv

and Kimhi, 2006; Lien et al., 2006). However, Aronsson and Carle´ n (2000) found

education level to be one important determinant of forest land prices. Moreover,

Lien et al. (2007) found education to impact positively on the technical efficiency in

timber production. Reasons why education is positive regarding the owner’s

harvesting behavior may be that educated owners also are more informed about the

property’s resources or that they also might have more debt.

Location of the property near urban areas has previously been found as a variable

that reduces the level of harvesting (e.g. Munn et al., 2002). This is supported in this

study as the dummy variable for location near urban areas are negative in the

production model, i.e. properties located nearer than 75 min of travel distance from a

town with more than 50,000 inhabitants (commuting distance) have a lower

harvesting level than other properties. However, regarding the harvesting decision

no impact from location is found. One explanation is that properties located near

urban areas to a larger extent may adapt shelter-wood cutting rules rather than clear

cutting in order to reduce conflicts between harvesting and multiple-use forestry.

This is not explicitly analyzed in this study and might be a line for further research.

Size is decisive to whether an owner chooses to harvest or not, though not

necessarily regarding the level of harvesting. However, in line with previous studies

(Hyberg and Holthausen, 1989; Kuuluvainen and Salo, 1991; Kuuluvainen and

Tahvonen, 1999), a larger degree of forested area relative to the property’s total area

is positive regarding the level of harvesting. Moreover, and a result also found in

previous studies (Kuuluvainen and Tahvonen, 1999; Løyland et al., 1995), forest

management plans are positive both for the harvesting decision and the choice of

harvesting level. Note that owners may have chosen a management plan for activity-

related reasons (e.g. property size), introducing some self-selection bias to the model,

but it might also be that information of the property’s resources stimulates owners

to harvest.

In this paper, focus has mainly been put on the impact of different types of on-

and off-property income, which effects have shown to be ambiguous when

comparing previous studies. One proposition might be that since exogenous income

could be used to satisfy the owner’s debt commitment, this will work in direction of

increasing harvesting (Fina et al., 2001). On the other hand, increased wealth (due to

increased exogenous income) will make owners put more weight on the utility-

increasing effect from for example amenities, and thus reducing harvesting levels and

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frequencies (Kuuluvainen and Tahvonen, 1999). Our results show that it is not

arbitrary, for the owners’ harvesting behavior, whether other income is earned off-

property or on-property. There seem also to be differences between impacts from

different types of on-property income sources. One clear tendency is that off-

property income (typically wage income) seems to impact negatively on the

harvesting decision as well as on the harvesting level. A conclusion drawn from this

is that wage-earners might adopt the same utility-maximizing rule discussed by

Kuuluvainen and Tahvonen (1999), namely that they can afford more financial loss

in order to gain utility from nontimber benefits. If this is true, the same effect is not

the case when the owners get a high level of agricultural income, neither to a certain

extent when it comes to income from other outfield-related productions. Both

income sources are found positive for the owner’s decision whether and not to

harvest, and increased agricultural income also impact positively on the level of

harvesting. Thus, it may not be the level of exogenous income which counts, but

rather differences in the utility functions between owners with high wage income and

owners where most income is found on-property. One effect not accounted for in this

study, but found to impact harvesting negatively, is whether or not the owner lives

on the property (e.g., Conway et al., 2003). Some of the owners with a high level of

wage owners probably live outside the property. Conway et al. (2003) argue that

absentee owners may have less information about harvesting than residence owners

and that such owners are more concerned about for example recreational values of

their property rather than (small) revenues from harvesting. As a byside, the possible

effect of information may also explain the positive impact from forest management

plans. Owners with a plan have larger information about the properties resources,

which might be positive regarding their harvesting behavior.

From the discussion above it seems that increased dependency on the property as

an income generator leads to a greater utilization of the property’s resources. Some

differences are however found between income from other outfield-related

productions and agricultural income since the latter also impact positively on the

level of harvesting. This may be explained by the fact that agricultural production

will to a minor degree conflict with forestry, while productions such as cottage

renting and tourism might. Thus, in such productions owners’ may adopt other types

of harvesting (for example, a larger degree of shelter-wood harvesting). This is also

discussed in Lien et al. (2007) who find that other outfield-related productions seem

to impact negatively on the owners’ technical efficiency. The owners seek to

maximize the utility from a portfolio of activities, where forestry is one out of several

others, and thus conflicting productions have to be weighted up against each other.

One important policy implication is found in our study. The Norwegian

agricultural authorities have over the last few years’ stimulated growth of other

outfield-related productions on the properties. Our findings support this agricultural

policy also from a forest policy point of view. Forestry seems go hand in hand with

other activities on the property. Forest activities are more promoted by forest owners

who engage in outfield-related business than by those who also engage in off-

property work. Besides, in a forestry context it could be argued that the agricultural

authorities should encourage rather than work against the structural development.

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175

The larger the property, the more intensive are the forestry activities and the

activities in other outfield-related businesses.

Acknowledgments

This study is a part of the project ‘‘Private forest owners’ decision making under

multiple objectives and productions’’, financed by the Research Council of Norway,

Grant 166455/I10.

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