Steady State Analysis of the Finnish Forest Sector

During the recent years the total cost of round wood for the Finnish forest industry has been in the order of US$1.5 billion annually. The share of stumpage price represents roughly one half whereas harvesting, transportation etc. account for the rest. The purpose of this study is to investigate long term equilibrium prices for wood (and thereby total round wood costs) under various conditions of world market of wood products. In the first part of this paper a (discrete time) dynamic linear model for the forest sector is discussed. The steady state version of it is analyzed in more detail. An application of the steady state forestry model is carried out for the Finnish forests. As a result, alternative sustained yield solutions for the Finnish forests are obtained. In the analysis of the second part, a steady state sectoral model is adopted to carry out a Stackelberg equilibrium analysis for the round wood market. Further elaboration appeared necessary until the steady state model became suitable for this game theoretic analysis. This elaboration involves definitions of objective functions of the key parties (the forestry and the industry) in the forest sector game. A demand function of constant price elasticity is adopted for wood products