THE IMPACT OF RESERVE PRICES IN SEALED BID FEDERAL TIMBER SALE AUCTIONS

In this article we examine the impact of reserve prices on timber reve nues from federal timber sale auctions in North Carolina from a game-t heoretic perspective by recognizing the effect of competition on optim al bid strategies. The empirical model endogenizes the number of bidde rs in a simultaneous-equations Tobit framework, and estimates the impa cts of the reserve price on the probability that an offering will sell , as well as on the sale price given that the offering is sold, in the presence of strategic bidding behavior. Model results support the und erlying game-theoretic structure. The number of bidders and the reserv e price are both important in determining market value or high bid. Us ing a Wu-Hausman test, we reject exogeneity in the number of bidders. Importantly, a calculation of the change in market value given a chang e in the reserve price shows that increasing reserve prices will likel y increase timber revenues on sales in North Carolina, thus providing evidence that reserve prices are not optimal. However, increasing the reserve price will decrease the proportion of sold sales which may not support nontimber objectives of the Forest Service.