Economic impact of environmental regulations on Southern softwood stumpage markets: A reappraisal

Abstract

In an earlier study Wagner, Cubbage, and Holmes (WCH) conducted an applied welfare analysis of environmental regulations in the South's forestry sector. A major finding was that southern timber producers are net beneficiaries of regulation, at least in the short run. Unfortunately, this conclusion is based on a flawed procedure for calculating the producer welfare impact of a supply shift. In addition, the study mismeasured the supply and demand shifts. In this study we present a method for applied welfare analysis that avoids these problems, yet is theoretically consistent and easier to apply. Applying the simplified method to WCH's analysis, we find that environmental regulations impose a significant cost on the South's forestry sector (timber producers and consumers alike). Still, the gains to society from an improved environment may well offset these losses. The corrected estimates in this article provide a basis for assessing such tradeoffs.