Production Function Analysis and Market Adjustments: An Application to the Pacific Northwest Forest Products Industry

A market model for the Pacific Northwest forest products industry is constructed as a system of supply and demand equations. The output supply equation explicitly represents the underlying production process through the use of the translog form of the production function. Estimates of the market-to-market elasticity measures suggest that changes in U.S. construction demand and changes in private forest inventories have a greater impact on output price and factor employment in the Pacific Northwest forest products industry than increases in the amount of stumpage sold from the National Forests. Further, the market-to-market elasticity measures show a greater degree of substitution between inputs than indicated by the Allen partial elasticities of substitution derived from the production function. Forest Sci. 29:813-822.