A Product Diffusion Approach to Modeling Softwood Lumber Demand

Abstract The price elasticity of demand plays an important role in determining softwood lumber consumption. The specification of this relationship is of special interest to national assessment methodology since, in the long-range projections employed there, the demand elasticity is necessary to determine the full impacts of policy alternatives. The present study was conducted to determine how technological change has affected the response of softwood lumber demand to its price since World War II. Consumption of softwood lumber was broken down by individual end-use sectors. Prices of key substitutes were compiled for the periods over which they actively competed with lumber for various end-use markets. A model, based on product diffusion, was formulated and applied to the data. Statistical regressions were used to estimate the parameters of the diffusion processes. The results of the analysis indicate that the price elasticity of demand for softwood lumber has declined since World War II. The culmination of several major substitution trends, together with the absence of significant new technologically induced substitutions, brought about the change. The analysis indicates that projections of future price elasticities should be made in the context of the technologies that are expected to play a market role in the projection interval. Forest Sci. 31:685-700.