Working Paper

The Effect of Stochastic Oscillations in Property Rights Regimes on Forest Output in China

Feb 13, 2014 | Xueying Yu, Stephen W. Salant


Over the past 65 years, forest tenure in China has oscillated unpredictably between private and common property regimes. This policy-induced uncertainty has distorted the harvesting decisions of individuals granted rights to grow trees and has lowered the value of China’s forest output. We provide an analytical framework for assessing these effects quantitatively. Understanding the consequences of this policy-induced uncertainty is particularly important since China is currently engaged in an ambitious plan to increase its domestic supply of timber. We estimate that net revenue from nonstate forests would approximately double if farmers had entirely secure use rights to grow trees. Contrary to the standard result in the literature that catastrophic risk makes farmers harvest earlier, we find that they may delay harvesting if the government pays sufficient compensation for the loss.