The efficiency of resource use in the logging industry

Abstract

The logging industry is defined as being comprised of firms which combine capital and labor resources in a production process for converting stumpage into industrial roundwood. The industry occupies an important position in a series of inter-connected markets and manufacturing processes which links stumpage producers with wood product manufacturers and final consumers of wood and wood fiber products. Consequently, a knowledge of the efficiency of resource use in the logging industry is important to those who are concerned with the economic performance of this industry and the forest-based sector of the economy. The objectives of the study were to: (1) evaluate the efficiency of the capital and labor resources used in the national logging industry and its two major sectors, the southern pine and Douglas fir sectors and, (2) to complete an inter-regional comparison of the resource efficiencies evaluated under the first objective. The analytical framework for evaluating resource efficiency in the logging industry was derived from the theory of aggregate production economics. The theory suggested the single-equation Cobb- Douglas function was an appropriate model for describing the aggregate relationships between capital and labor resources used in production and the roundwood output produced by the industry. This model and U. S. Bureau of the Census cross-section data for Logging Camps and Contractors, SIC Z411, for the 1963 Census year were used to empirically estimate aggregate production functions for the industry and its two major sectors. The structural parameters of the estimated industrial production functions provided the bases for deriving three indicators of resource efficiency. These three indicators were: (1) the elasticity of production for each resource input, (2) the marginal productivity of each resource input, and (3) the condition of returns to scale prevailing in the production process. The empirical results of the analyses undertaken to achieve the first objective of the study were not entirely satisfactory. As a consequence, new sets of input variates were defined and used to estimate additional production functions. Five production functions were estimated for the industry and for each of the two sectors. While some improvement in results was obtained through the additional estimates, the overall results precluded achieving the first objective for the southern pine and Douglas fir sectors. As a consequence, the second objective of the study was not achieved. The empirical results obtained for the national industry provided divergent indicators of resource efficiency. This divergency was dependent on the specification of the capital input variate considered in the industrial production functions. In the case where the production function contained the capital variate defined in terms of gross book value of depreciable assets or a stock concept, the empirical evidence indicated the industry used resources efficiently. Constant returns to scale were estimated and the estimated marginal productivities of capital and labor resources closely approximated marginal costs for these resources. However, in the case where the production function contained the capital variate defined in terms of new capital expenditures or a flow concept, the empirical evidence indicated the industry did not use resources efficiently. Increasing returns to scale were estimated. Additionally, as the estimated marginal productivity of capital exceeded the estimated marginal cost of capital, it was concluded the industry was under-capitalized. Conversely, as the estimated marginal productivity of labor was less than the estimated marginal cost of labor it was concluded the industry employed excessive amounts of labor. The question of resource productivity in the logging industry was not resolved. However, the results of the study indicated the role of capital in the industry must be investigated more fully before further progress can be expected.