Market Dynamics and Optimal Timber Salvage After a Natural Catastrophe

Forest-based natural catastrophes are regular features of timber production in the United States, especially from hurricanes, fires, and insect and disease outbreaks. These catastrophes affect timber prices and result in economic transfers. We develop a model of timber market dynamics after such a catastrophe that shows how timber salvage affects the welfare of different market groups and quantifies the impacts of salvage on product markets. A theoretical framework is developed that explores how government spending to mitigate economic losses through salvage is related to the costs of intervention. Using empirical price and quantity parameters derived for Hurricane Hugo as an example, we simulate how alternative levels of salvage would have affected southern pine timber prices and economic surplus. Results show that for this large-scale disturbance, the economic surplus generated by salvage averaged $6.25 million for each percentage change in the volume of salvaged timber up to the observed salvage rate (-16%). Consumers benefited by an average of $5.4 million for each percent of the damaged timber that was salvaged, producers of salvaged timber benefited by $6.4 million for each percent salvaged, and producers of undamaged timber lost an average of $5.6 million for each percent salvaged. Sawtimber salvage yielded welfare benefits for each cubic meter averaging more than four times those generated by pulpwood. These results therefore have implications for strategic salvage planning follow- ing catastrophic damage to forests. FOR. SCI. 50(4):495-511.