Abstract
Discrepancies between the theoretical and actual investment behavior of firms in the Canadian forestry sector are described. It is demonstrated that these inconsistencies are, in reality, illusionary. They result from the failure of some analysts to account for the institutional framework within which private forest companies in Canada make decisions concerning the replacement and management of forest crops. When the constraints imposed on the private sector are considered, conduct of forestry firms does conform to "economic rationality". Thus, conventional economic theory can be used to predict firms' behaviors. It is suggested that Canadian forest policies encourage behavior in private firms which may significantly reduce the value of public forest resources. Specifically, firms have no incentives to efficiently allocate scarce capital resources to silvicultural activities.
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