Benefits of forest-owner collaboration and imperfect capital markets

This article examines the effects of capital market imperfections on the optimal harvest of nonindustrial private forest owners and the potential of collaborative stand management and timber selling to counteract these effects. Monetary benefits of two-owner collaboration are derived under a binding borrowing constraint, and when borrowing and lending rates of interest differ. It is shown that collaboration offers a way to reduce the welfare loss of capital-market imperfections by permitting landowners to restore, at least partially, the separability of consumption and timber production decisions. Pooling stands enables landowners to take better advantage of the value growth of timber and to increase the profitability of their forest holdings.