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Derived Demand for Wood and Other Inputs in Residential Construction: A Cost Function Approach

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Abstract:

A translog cost function for residential construction was developed and estimated with United States data for the period January 1968 to December 1977. It was determined that a special case of that general form, the cost function dual of the generalized Cobb-Douglas production function, adequately explained the data. This function was used to determine the components of the rise in construction costs during the period of observation. It was found that labor costs contributed much more to the rise in construction costs than did other inputs. Using duality theory, the derived demand functions for softwood lumber, plywood, hardboard and particleboard, other materials, and labor were obtained, consistent with the statistically determined cost function. Own-price elasticities for wood products ranged from -0.91 to -0.95. Cross-price elasticities among all construction materials were low, although most were highly significant. The rate of growth of the derived demand for each input over the sample period was determined and decomposed into substitution effect, output effect, and a residual trend effect. Forest Sci. 28:207-219.

Keywords: Construction costs; elasticities; hardboard; particleboard; plywood; softwood lumber

Document Type: Journal Article

Affiliations: Associate Professor, Department of Forestry, University of Wisconsin, Madison, WI 53706

Publication date: June 1, 1982

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