LONG-RUN TIMBER SUPPLY: PRICE ELASTICITY,INVENTORY ELASTICITY,AND THE USE OF CAPITAL IN TIMBER PRODUCTION

Timber production requires substantially more capital per unit output than does virtually any other economic enterprise. The quantity of capital deployed depends primarily on the rotation length and the output price for timber. In a long-run timber supply model this gives rise to a “backward bending” supply curve. This paper summarizes a long-run model of timber supply, and computes the associated price and inventory elasticities. The role of capital in timber production is explored through a continuous-time formulation of the usual Faustmann point-input/point-output model. The theoretical results are illustrated through an example based on loblolly pine yields for the U.S. South.