Timber price dynamics after a natural disaster: Hurricane Hugo revisited

Abstract

Timber prices in the area struck by a natural disaster such as a hurricane or pest infestation are known to drop sharply immediately following the disaster, only to recover after about a year or so. Previous research attributes the rapid recovery to shifts in supply and demand curves. Our analysis suggests the more probable explanation is rotation in the curves. Supply and demand shifts come into play in the second and third years as rebuilding from the hurricane begins in earnest, and as timber inventory is rebuilt in response to elevated price expectations. But for the period in which price recovery occurs, model simulations based on data for Hurricane Hugo indicate the major causal factors of the observed price dynamics are curve rotation and trade with the surrounding undamaged region. Inventory-based supply shifts, the previously-identified causal factor, play a minor role in the observed price dynamics. Getting the causal factors right is important for predicting the price effects of forest inventory shocks, and for proper measurement of their welfare effects.