PRICE ELASTICITIES OF SUBSTITUTION BETWEEN SPECIES IN THE DEMAND OF UNITED-STATES SOFTWOOD LUMBER IMPORTS FROM CANADA

The softwood lumber that Canada exports to the United States is a hete rogeneous mix of spruce, fir, red cedar, pine, hemlock, and other spec ies. The purpose of this study was to determine to what extent each sp ecies is a distinct economic good by using a characteristic demand equ ation. The theory consisted of a cost-minimizing aggregate U.S. demand for imports and of share equations for each species. Partial adjustme nt was introduced to accommodate out-of-equilibrium observations. The results showed that the demand for each species, except fir, was elast ic with respect to the price of that species, with elasticities that d iffered substantially by species. Cross-price elasticities between ind ividual species were generally small. It is shown how the effect of a price change of any single species consists of two parts: a market-exp ansion effect that is the same for all species and a substitution effe ct that is species specific.