Tbat This Could Manifest Itself through Changing Demand or Supply Price Elasticities. Consider Using the Timber Structural Change in Southern Softwood Stumpage Markets

The potential for structural change in southern stumpage market models has impacts on not only our basic understanding of those markets, but also on harvest, inventory and price projections, and related policy. In this paper, we test for structural change in both sawtimber and pulpwood softwood stumpage markets in the U.S. South over the period 19501994. Test results strongly reject structural stability in both sawtimber and pulpwood supply over the period. However, stability in stumpage demand can not n-y be rejected Using a new technique, Flexible Least Squares (FLS), a series of varying elasticity models are estimated. Results of the FLS procedure show that both pulpwood and stumpage price supply elasticities have been trending upward over time. The degree of this trend depends upon whether a linear or log-linear model is specified. INTRODUCTION This paper addresses structural stability and the potential for time-varying price elasticities in southern softwood stumpage markets. The specific purposes of this paper are first, to test for structural stability in southern softwood sawtimber and pulpwood stumpage markets, and second, to estimate a flexiile parameters model that examines how structural change might be embodied in stumpage price elasticities over time. The question of structural change in stumpage markets is a concern because it impacts our basic understanding of those markets. Our understanding is generally embodied in a set of parameter values such as price and inventory elasticities, and functional form Concerns also rest with the methods used to estimate market parameters. Often, parameters are estimated using limited time-series data Estimam based on h&rical data are only good in the sense that they measure the “average** market structure over the estimated time period. In many cases, this may not necessarily represent a problem. If. though, one is interested in obtaining a morepreciseestimateofthemarketpammeuxasitnow exists, tecause this ‘true” parameter is important for making good policy, then using historical data to measure the parameter may give poor results. This is espe&llytrueifthemarketstructureistrendingina particularmannerovertime,orifthereisanabrupt structural change in the market. Figure 1. Softwood saw-timber harvest. A brief example might help to show why understanding structural change in markets may be of interst. Let us assume that if structural change is occming in southern stumpage markets for instance, Figures l-3 illustrate the sensitivity of TAMM (1993 version) softwood sawtimber harvest, softwood inventory, and sawtimber price projections for the U.S. s0utht0aniIlcmse-m softwood sawtimber supply price elastici& (Ep) by 25% above currently simulated levels (for example from 30 to .375). Such a xenario might prove plausiile if, for instance, elasticities were rismg over time, but TAMM used the average elasticity ’ Associate Professor of Forest Economics and Management, School of Forest Resources and Conservation, University of Florida, Gainesville, FL 32611-0420. Funding for ti resexcb was provided by the USDA Forest Service, Southern Research Station, Economics of Forest Protection and Management Work Unit, RTP, NC 27709. This is Florida Agricultural Exper&mt Station Joumal Article Number N-01573.