THE EFFECTS OF FACTOR SUPPLY ASSUMPTIONS ON INTERTEMPORAL TIMBER SUPPLY BEHAVIOR - THE CASES OF INVESTABLE FUNDS AND LAND

Intertemporal timber supply models typically assume perfect capital ma rkets and perfectly inelastic supplies of land. Using a dynamic model of U.S. timber and agriculture markets, we examine (i) borrowing limit s or capital constraints, in which investment in forest management on nonindustrial private ownerships is restricted, and (ii) a nonzero ela sticity of land supply. Results suggest that alternative treatments of supply conditions for these factors influence the flexibility of the simulated market system to adapt to changes over time and across polic y scenarios. Supply restrictions limit adjustment options in managemen t activities and force greater change in other endogenous elements suc h as price and consumption. Implications drawn from any policy analyse s also differ with input supply assumptions. Policy impacts were found to be largely transitory in the cases without investment limits and e ssentially permanent when limits exist. Recognizing a price-sensitive land supply, at least as this process is represented in the present mo del, partially compensates for the imposition of borrowing restriction s, moving projections closer to behavior observed in the perfect capit al market cases. Access to additional land as potential afforestation investments provides additional private investment flexibility. Typica lly, however, this linkage is neither explicit nor endogenous in fores t sector models.