Economic Impacts of Hurricanes on Forest Owners

This section presents a conceptual model of the economic impacts of hurricanes on timber producers and consumers, offers a framework indicating how welfare impacts can be estimated using econometric estimates of timber price dynamics, and illustrates the advantages of using a welfare theoretic model, which includes: (1) welfare estimates that are consistent with neo-classical economic theory, and (2) wealth transfers among various market participants that can be evaluated. Timber producers in the Southern United States are faced with the regular risk of damages from intense hurricanes. Individual events can kill several million cubic feet of standing timber, with attendant losses for forest owners. One result of using a welfare theoretic model that is not apparent using simpler models is that timber producers with undamaged timber suffer economic losses in the short-term due to a price depression, and they may be compensated in the longterm by an enhancement of market prices due to the loss of standing inventory. Catastrophic storms induce losses to timber producers holding damaged timber due to quality degrade, price depression, and the inability to salvage all of the damaged timber. To minimize decay-related losses, owners of damaged timber should salvage as quickly as possible and favor salvage of higher value trees. Owners of undamaged timber should delay harvesting until salvage wood is exhausted from the market. Evidence suggests that timberland investors under hurricane threat could benefit by diversifying their holdings geographically, favoring areas far enough from coastal counties to minimize catastrophic losses from such storms but close enough to benefit from market-level price enhancements resulting from regional inventory losses.