The effects of forest taxation on timber supply under the double uncertainty of real interest rate and future timber price are analyzed in a mean-variance framework. If future timber price and interest rate are independent random variables, there exists an asymmetry between lenders and borrowers, as there is in the single interest rate uncertainty case. Borrowers cut more and lenders cut less as a response to double uncertainty relative to single price uncertainty. If timber price and interest rate are correlated, the sign of the covariance is crucial for the interpretation of the optimality conditions and for the comparative static analysis results. If covariance is negative, borrowers still tend to increase their cutting, but the behaviour of lenders depends on the relative magnitudes of risks associated with interest rate and timber price, which is indicated by variances and covariance. Finnish data are used to evaluate the size of various risks and the sign of covariance. The evidence suggests that a statistically insignificant negative correlation exists and that the covariance is zero.
This paper assesses policy-related transaction costs (PRTC) associated with the main agricultural and agri-environmental policy instruments in Finland. We find that area-based income support measures entail low transaction costs as expressed in percent of payments, not only in Finland but also in other European countries. Moreover, transaction costs in the Finnish agri-environmental programme are surprisingly low. Within the agri-environmental programme, transaction costs increase with more targeted and differentiated agri-environmental measures. For the basic mandatory measures, these costs are even lower than the transaction costs for the area-based income support measures. What regards the most differentiated policy measures such as conservation of special biotopes or establishment of riparian buffer zones, transaction costs increase considerably. Combining these findings with the actual targets of the Finnish agricultural policies provides indirect evidence about the impacts of policy instruments and the efficiency of administration in implementing the instruments. For area-based income support measures, the Finnish administration seems to work very efficiently. For water protection targets, enforcement and division of labour within the administration seem to be insufficient.
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