The Swiss market for construction wood : estimating elasticities with time series simultaneous equations

We use a rich yearly time series dataset to estimate demand and supply price- and cross-elasticities on the market for construction round wood in Switzerland, on the period 1949-2013. We consider both short term and long term relationships, thanks to the Error Correction Model and correct for the price endogeneity using a supply-demand equations system estimated with the 3 Stages Least Squares approach. Given the importance of wood products in CO2 sequestration, an increase in the use of local wood for construction purposes may help reducing the CO2 net emissions. Yet, the Swiss forest industry suffers from the low price of wood and is unwilling to produce more timber, despite the important potential of wood mobilization in Switzerland. Financial incentives may help meeting the goals of both environmental and economic sustainability, if actors respond to price changes. We find that both demand and supply are sensitive to price changes in the long and short run but that the simultaneous increasing demand for energy wood may have counterproductive impacts on the construction wood production.