Empirical Reserve Price in Forestry: Application to US Forest Service

Abstract

This article exploits data from ascending auctions from the US Forest Service to estimate an optimal reservation price in forestry when prices are uncertain and when the forest owner endogenizes the cutting age of trees. The results suggest that there is a huge gain in terms of the forest owner profit to use the estimated optimal reservation price rather the well-known reservation price proposed by Laffont and Maskin ’ s and Riley and Samuelson’s which is suboptimal in the forestry context. Finally, the results also confirm that the reservation price set by the US government agency is too low.