Welfare implications of tax driven industrial timberland ownership change on U.S. timber markets

In the last two decades, many firms in the U.S. forest products industry have either divested their timberlands to timber investment management organizations (TIMOs) and conservation organizations or converted their corporate structures from C corporations to real estate investment trusts (REITs). All landowners sold smaller timberland tracts for nonforestry uses. Reduced timber supplies from conservation organizations and timberland loss to other nonforestry uses were believed to have consequences on the welfare (i.e. economic surplus) shares of producers and consumers in the U.S. timber markets. This issue has not been adequately addressed in existing literature. Equilibrium displacement models were employed to address welfare implications in U.S. timber markets attributed to timberland ownership changes. Due to the net reduction of timber supply, total social welfare decreased by $43 million in 2006. Compared to over $33 billion U.S. timber markets, this welfare reduction was quite small. This study thus helps justify timberland divestiture decisions of industrial timberland owners, and understand the shifts of welfare share among producers and consumers when timberlands change hands.