An economic analysis of Swiss wood markets
We used case studies to examine Swiss wood markets and explain how they function on the basis of economic theories. The results were incorporated into the development of an agent-based model that estimates the availability and the allocation of timber under different market conditions.
Project description (completed research project)
We identified factors that influence important stakeholders of the forest wood markets. Our approach combined insights from economic science and forestry with agent-based modelling. This allowed us to simulate changes in supply and demand as well as external influences on markets. The agent based model (ABM), which is based on data from practice, served as a basis for generating market scenarios and analysing how agents’ behaviour affects the market results.
By producing timber, the forestry sector provides an important basis for the sustainable use of resources in Switzerland. But there are conflicting interests because not all stakeholders place the same demands on forests and timber. The question of how much timber is available depends to some degree on the stakeholders in the forestry sector; exploring and modelling their behaviour was part of our project.
How do stakeholders in various Swiss wood markets behave? We found possible answers to this question in behavioural and institutional economics. We then combined this theoretical framework with results from participatory events and surveys in the case study regions in the cantons of Aargau, Bern and Graubünden. We wanted to visualise the market behaviour of forestry stakeholders in these regions as well as estimate under specific conditions how much timber is available for whom and how it is used. By doing this we gained a better understanding of timber markets. This formed the basis for models which we used to test and optimise different measures which aim to improve the availability of timber.
In a further step, we aim to develop a user-friendly interface of the agent-based model so that it can be used more readily to solve practical issues.
The agent-based model of the wood market provided a theoretically and empirically sound basis for explaining the behaviour of stakeholders in Swiss wood markets. It enabled us to identify and analyse hypothetical and future market developments. In addition, we could examine whether economic incentives and institutional rules are suitable for improving the availability and distribution of timber.
The weak profit orientation of forest owners and high harvesting costs can severely limit the availability of timber. In addition, forestry operations have relatively small budgets in many communes. Market signals have therefore little impact on the wood supply of publicly owned forests.
But the behaviour of timber suppliers depends not only on economic thinking. In a number of experiments in the test regions we were able to show that the expected revenues from selling timber is only one factor influencing the decisions of forestry stakeholders: just as important is the trust placed in the buyer. Another important aspect is time: sellers who do not have to sell in a rush are more likely to adopt differentiated selling strategies involving more than one potential buyer.
We validated the agent-based model using the historical case of a large-sized sawmill (“Domoat/Ems”) entering the market and becoming insolvent only a few years later. We used the model to analyse price developments and market volumes of logs, industrial and energy wood. We differentiated between three types of timber suppliers: public forest managers, private forest owners and importers. The model also incorporated two types of intermediaries who play a part in timber selling: bundling organisations and traders. The stakeholders in the model were given various attributes that had been empirically selected in so-called choice experiments. This enabled us to study how behaviour influences the market result, particularly the provision of wood for buyers. As a result, it is possible to show what happens when, for example, forest managers behave more profit-oriented or how increasing non-managed woodlands or the market entry of new buyers and other changes affect the situation.
The analysis of the timber market showed how the sales channels of forestry managers vary regionally. In Graubünden, they prefer to sell through bundling organisations than to sell it through traders or forest contractors. In Aargau, foresters prefer to sell directly to the demanders.
Analysing Swiss Wood Markets – An Institutional and Computational Economic Approach