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The Impact of Reserve Prices and Contract Length on Stumpage Bid Prices: An Empirical Assessment

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Paired bidding field experiment methodology was used to assess the impact of reserve prices and contract duration on stumpage bid prices on 148 timber tracts offered for sale by the Minnesota Department of Natural Resources from November 2008 through January 2009. The 148 timber tracts generated 293 usable paired bids for the reserve price treatment and 145 paired bids for the contract duration treatment. The majority of bidders significantly altered their bidding behavior when lower reserve prices were offered. On average, stumpage bids associated with the half reserve price versions of the tract were 16% less than those for full reserve price versions. However, for 43% of the bids received, reserve prices had little or no impact on bidding behavior. Although a change in reserve prices significantly altered individual bidding behavior and stumpage prices, a fixed-effects model indicated that the underlying factors driving this change were entirely firm-specific. Stumpage bids were only 2% greater for 5-year contract duration tracts than for 2-year contract duration tracts. In general, bidders did not expect a 5-year contract to give them any additional value associated with long-term (3 additional years) stumpage price increases, which is consistent with stumpage market conditions that existed at the time of the study.
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Keywords: economics; paired bidding; timber sales; willingness to pay

Document Type: Research Article

Publication date: 01 June 2013

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