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Profit Efficiency in Timber Supply: Marginalization and Other Relevant Influences

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Abstract:

The objective of this article was to explore how marginalization of revenues from timber sales relative to income from agriculture and employment affects profit efficiency (the ratio of actual profit to maximum obtainable profit). We also sought to identify and measure the effects of other relevant inefficiency factors. A translog profit frontier function with an inefficiency module was estimated using a panel of 2,265 observations of 385 active Norwegian forest owners for 1991‐2004. We found that profit efficiency decreases as the revenues from timber sales fall relative to agricultural or wage income. Other factors decreasing the efficiency were logging distance (beyond what can be explained by logging costs), fragmentation of the forest property, and time. Factors increasing profit efficiency were experience (age), information (possession of a management plan), and geographical location (centrality). On the basis of our results we make recommendations on how forest owners can improve their profit efficiency. We also suggest further developing and streamlining contract regimens as policy instruments for promoting efficiency.

Keywords: forest ownership; stochastic frontier analysis; timber harvesting

Document Type: Research Article

Publication date: December 1, 2009

More about this publication?
  • Forest Science is a peer-reviewed journal publishing fundamental and applied research that explores all aspects of natural and social sciences as they apply to the function and management of the forested ecosystems of the world. Topics include silviculture, forest management, biometrics, economics, entomology & pathology, fire & fuels management, forest ecology, genetics & tree improvement, geospatial technologies, harvesting & utilization, landscape ecology, operations research, forest policy, physiology, recreation, social sciences, soils & hydrology, and wildlife management.
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