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Financial Analysis of Scale Versus Lump Sum Timber Sale Payment Methods

Author

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  • Barron, Patrick M.
  • Kilgore, Michael A.
  • Blinn, Charles R.

Abstract

A financial analysis of two methods commonly used by public land management agencies to collect payment for stumpage sold was carried out using data from the St. Louis County Minerals and Land Department (SLCMLD) in northern Minnesota. The two payment methods evaluated were scale (also called pay-as-cut and consumer scale) where the buyer only pays for timber harvested and lump sum (also called sold-on-appraised-volume or SOAV) where a buyer pays for the entire tract’s estimated volume, regardless of the amount of timber actually harvested. The analysis found no significant difference in gross timber sale revenue collected by the SLCMLD under the two payment methods Scaled timber sales incurred an additional $323 in administrative costs per timber sale compared to lump sum timber sales. This increase in administrative costs represents less than 1% of the timber value contained in the average SLCMLD timber sale. Differences in the standards agencies use to estimate merchantable stand volume of a timber sale and the administrative time spent processing timber sales can impact the financial costs associated with each timber payment method.

Suggested Citation

  • Barron, Patrick M. & Kilgore, Michael A. & Blinn, Charles R., 2017. "Financial Analysis of Scale Versus Lump Sum Timber Sale Payment Methods," Journal of Forest Economics, Elsevier, vol. 28(C), pages 63-69.
    • Handle: RePEc:eee:foreco:v:28:y:2017:i:c:p:63-69
    DOI: 10.1016/j.jfe.2017.06.001
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    References listed on IDEAS

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    1. Leffler, Keith B & Rucker, Randal R, 1991. "Transactions Costs and the Efficient Organization of Production: A Study of Timber-Harvesting Contracts," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 1060-1087, October.
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