moderate (50 percent) log shock scenario was largely mitigated by higher log and wood product
prices. Especially important were price effects in the wood products sector. Since most regional
models are fixed price in nature it is likely that the relationship between federal log supply
reductions and national price effects has not been given the attention it deserves in regional
economic impact analysis. When the national price effect is combined with flexible price response
of the CGE framework the story of regional impact of supply shocks becomes much less
pessimistic than the IO story. On balance the CGE story is more consistent with economic theory
and should be a more accurate story. Having said this, it should be noted that this analysis may be
too optimistic regarding private log output response to price increases. Output levels for all
sectors are determined by the condition of marginal factor price equal to value of marginal
product. In the case of logging these conditions may generate more log output than could be
sustained from private forest land. On the other hand the wood products sector is not under such
a severe constraint and it is the price effect for this sector that mitigates much of economic
damage stemming from the log shock.
18
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