Timber price dynamics following a natural catastrophe

Catastrophic shocks to existing stocks of a renewable resource can cause lo ng-run price shifts. With timber, these long-run price shifts may be accomp anied by a short-run price drop due to salvage. Hurricane Hugo damaged 20% of southern pine timber in the South Carolina Coastal Plain in 1989. To est imate the short- and long-run effects of the hurricane on the prices of tim ber stocks, we estimated an intervention model of the residuals of cointegr ation of South Carolina sawtimber and pulpwood stumpage prices with prices of similar products from other regions. Modeling revealed a 30% negative pr ice spike due to salvage and a long-run enhancement effect, leading to pric es that are 10% to 30% higher than they would have been had Hugo not occurr ed.