Transaction Evidence Appraisal: Competition in British Columbia's Stumpage Markets

Abstract

Abstract As a potential resolution to the softwood lumber dispute, the US Department of Commerce recommends that administered stumpage prices in Canada be determined using information from competitive timber auctions. Previous research indicates that the degree of competition significantly influences bidding behavior. In this article, therefore, a truncated hedonic timber sale model was developed to investigate the influence of competition on stumpage markets in the interior of British Columbia. Results indicate that lower bids in several northern zones of the province are due, at least in part, to lack of competition, but that market power appears limited by spatial arbitrage. In one zone characterized by monopsony, we estimate bids are shaded below their true valuation by $12.56/m3, which approximates the calculated transportation costs ($14.90/m3) to an adjacent more competitive zone. Furthermore, the significance of the inverse mills ratio suggests that ordinary least-squares regression leads to biased estimates. Our findings have policy implications for the future development and use of transaction evidence appraisal models as a potential solution to the long-standing softwood lumber trade dispute.