The Reservation Price Approach and Informationally Efficient Markets

We discuss and analyse the reservation price approach and the theory of informationally efficient markets. Using the basic principles of the Faustmann formula, an equilibrium model for an informationally efficient market is stated. This model is reduced to a statistically testable expression, which is used to analyse the Danish roundwood market for the three species: Norway spruce, beech and oak. Results show large differences between the markets for the three species, and the reservation price approach is not generally applicable. The price process for Norway spruce is likely to be trend stationary indicating inefficiency, the presence of a unit root in the beech prices cannot be rejected which indicates efficiency, and the result for oak is a level stationary autoregressive process implying possible inefficiency.