OUTPUT SUPPLY AND INPUT DEMAND IN THE PULP AND PAPER-INDUSTRY - A NONPARAMETRIC MODEL FOR THE UNITED-STATES AND CANADA

Demand and supply relationships are needed to understand the economics of the pulp and paper industry and to make forecasts of inputs, outpu ts, and prices. Here, long-run supply and demand elasticities were der ived with a nonparametric method exploiting the consequences of the we ak axiom of profit maximization (WAPM). No assumption was required reg arding the form of the profit function, and all own-price elasticities necessarily had the expected theoretical signs. But, an infinite numb er of quantity responses being consistent with the theory and data, fi nding a unique response required a new assumption: that quantities adj usted just enough to satisfy the WAPM. The data pertained to the pulp and paper industries of the United States and Canada from 1959 to 1987 . They recognized four outputs and nine inputs. A price shock of 20% l ed to elasticities that closely satisfied local homogeneity of the sup ply/demand functions, and symmetry of their price derivatives. Output supplies were all elastic, or nearly so, with respect to their own pri ces. The own-price elasticities of input demand ranged from -0.4 to -2 .2, demand for capital being one of the most elastic. Cross-price elas ticities tended to be small. The method was also applied to make out-o f-sample forecast of inputs and outputs conditional on observed prices , under nonregressive technical change. Forecasts for 1983 to 1987 wer e generally unbiased. A synthesis of parametric and nonparametric meth ods is still needed to improve forecasts.