Returns to scale in the Eastern United States logging industry

This study utilized financial records of private logging firms to examine if returns to scale exist in the logging industry in the Eastern United States. A total of 658 observations of contractor's logging costs and production collected for fiscal years 1988–2007 from 12 states were used in the analysis. A Cobb–Douglas production function was estimated based on six cost input categories using fixed and random effects estimation procedures for testing panel data. A Hausman specification test indicated that the fixed effects model was the preferred estimation procedure. The results of the F-test suggested that at best there were constant returns to scale, and at worst these logging operations were characterized by decreasing returns to scale. This finding indicates that strategies for improving competitiveness of the logging industry need to focus, to a greater extent, on profits and emphasize recovery of all logging costs as variable costs.