NATURAL RESOURCE SUPPLY CONSTRAINTS AND REGIONAL ECONOMIC ANALYSIS: A COMPUTABLE GENERAL EQUILIBRIUM APPROACH

was combined with log imports $16.62 (M) to form the composite log supply to the region (Q) of
$129.23.

In response to a reduction of logs from federal government land (FS), the partial
substitution structure of the CGE model will increase the log supply from private regional sources
(XXD) and from non-regional sources (M) to partially offset the reduction in federal supply. This
response will be driven by an increase in the price of logs produced and consumed in the region
(XXD) that is a function of the regional excess demand for logs stemming largely from the Wood
Products sector. As the regional price of logs increases, cost minimization implies that imported
logs (M) will be substituted for regionally produced and consumed logs (XD).

Total supply of Q supports intermediate demand (ND) and final demand for consumer
goods (C), investment needs (IT), and government purchases (G). In this model, all spending by
local agencies of federal, state, and local government is fixed at baseline levels. Any reduction in
revenues from taxation or government sales are assumed to be offset by transfers form other
sources (i.e., state and federal government).⁷ Consumption by each of three household income
classes is driven by changes in endogenous factor incomes and relative commodity prices. Finally,
business investment spending is fixed at baseline levels.

Modeling Scenarios

The length of run used in this analysis varies from relatively short-run to intermediate run.
Labor is assumed to adjust across sectors according to changes in factor demand, and in the
intermediate-run is assumed to be perfectly mobile in and out of the region. Corporate capital and

⁷While it can be argued that this assumption may tend to underestimate the extent of
regional economic adjustment, it is not unreasonable given the currently changing relationship
between state and local fiscal responsibilities.

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