jmherbenerI don’t know the history of this case in particular, but there are several instances in which governments leased timber and mining rights to companies instead of privatizing the land. In those cases, the forests tend to be clear cut and mines wastefully exploited because there was no private owner of the land and therefore, no one had a monetary incentive to account for the market price of the land itself. This is a case of the so-called tragedy of the commons.
A famous illustration is the terrible Pishtigo fire of 1871 in Wisconsin.
In contrast, companies that own their forest and mine land do not damage the market value of the land in these ways, Georgia Pacific for example.
Alternatively, as you point out, government subsidies may be to blame. Also, if timber companies know that the government is buying land titles, they would have incentive to clear cut and then sell to the state. Governments might buy even if the market value of the land to commercial owners has been, at least temporarily, destroyed by clear cutting.
Here’s a brief history of land ownership in West Virginia. A fifth of the land in West Virginia is still owned by governments. The Monongahela National forest was established in the early 20th century on land owned by Senators Davis and Camden, among others.
http://www.wvencyclopedia.org/articles/1293
Here’s a nice introduction to free market environmental policy.
http://www.independent.org/publications/article.asp?id=1447
And here’s a more scholarly treatment of private property and land use.
http://www.independent.org/publications/tir/article.asp?a=453