Abstract Timber scarcity relates to the evolution of stocks in both natural forests and tree plantations, relative to the demand from timber processing industries. Several economic indicators are used to evaluate timber scarcity. In particular, the market price of timber stumpage is believed to send a signal to investors in timber growing and to further regulate mill investments, thus preventing industrial overcapacities from emerging relative to future available wood supply. Our analysis of the Indonesian Pulp and Paper industry, one that expanded impressively in the 1990's and installed large overcapacities, gives us the elements to discuss the applicability of market price as a scarcity signal. Specific conditions, usually found in the developing world, most importantly weak or compromised public governance, flawed corporate governance, and the monopsony character of wood supply mechanisms, prevent the development of a market price scarcity signal. In this paper, special attention is paid to the complexity of the wood supply chain and the nature of the actors involved. This, together with the absence of pricing transparency, allows industrial overcapacities to occur, leading to the depletion of the natural forest. A key unresolved mystery here is why the private capital providers made no effort to detect this obvious and critical risk to the repayment capacity of their investments. The apparent absence of any government role in enforcing sustainable harvest or capacity levels results from state capture and governance failure, topics fully discussed elsewhere in the Indonesian case. The situation has implications for supply modeling as well as for public and private policies.