Temporary Roads 



Bid Premium 



Unlike permanent roads that remain after the timber 

 sale is finished, temporary roads return to nature. Road 

 access is blocked, the roadbed is planted to grass, and so 

 on. Temporary roads are typically minor facilities within 

 the timber sale and are relatively inexpensive. The aver- 

 age cost of temporary roads in the Northern Region was 

 $0.85/M bd ft and $1.19/M bd ft in the Intermountain 

 Region. 



Table 6 presents the models developed for temporary 

 road costs. As shown by the Ws, these models explain 

 about the same amount of variation in costs as previously 

 shown for permanent roads. And again, the model for the 

 Intermountain Region explained more variation in tem- 

 porary road costs than did the Northern Region's model — 

 56 percent vs. 38 percent. In both Regions, the miles of 

 temporary roads (TEMP) was by far the most significant 

 explanatory variable. In the Northern Region, sale size 

 (ACRES) was next most important, while in the Inter- 

 mountain Region, total sale volume (VOL) was second. 



Temporary road costs (per thousand board feet) are 

 best predicted from knowledge of road miles. Given the 

 sizes of the timber sales studied, temporary road costs 

 per unit of timber harvested increase as a function of 

 miles of roads. Stated differently, timber sales with more 

 miles of temporary road do not have correspondingly 

 more volumes harvested. The sale size variable (in acres) 

 in the Northern Region and the sale volume variable (in 

 million board feet) in the Intermountain Region both 

 represent sale size, and both reflect cost economies of 

 scale. 



To this point our cost estimation models merely predict 

 cost allowances developed by Forest Service personnel 

 when appraising timber under the residual value method. 

 Nobody really knows if these cost allowances are correct. 

 Similarly, nobody really knows if the product values de- 

 scribed in the appraisal are correct. If cost allowances are 

 too high and/or value allowances too low, the winning 

 stumpage bid may well exceed the appraised value, espe- 

 cially if several bidders are competing for the sale. This 

 differential is "bid premium," sometimes called "overbid." 

 Bid premium averaged about $36.16/M bd ft in the North- 

 ern Region and $8.60/M bd ft in the Intermountain 

 Region. 



Table 7 shows the models developed to estimate bid 

 premium. As stated earlier, these models attempt to 

 account for errors in product value (through SPLT), bid- 

 der competition for the sale (through #BIDDERS) and 

 errors in cost allowances (through five cost categories). 

 Final models explained about 55 percent of the variation 

 in bid premium in the Northern Region and only 19 per- 

 cent in the Intermountain Region. The amount of vari- 

 ation explained by the Intermountain Region model is 

 surprisingly low, indicating that our simple model is not 

 adequate to explain bid premium. Perhaps unmodeled 

 factors, such as those related to purchaser expectations 

 and speculation, play a more dominant role in the Inter- 

 mountain Region than in the Northern Region. 



Table 6 — Temporary road cost estimation equations 



Variable 



Northern Region 



Coefficient 



Intermountain Region 



Standard error Coefficient 



Standard error 



Constant 



TEMP 

 TEMP" 2 

 VOL 1 ' 2 

 ACRES 



R 2 



0.63 

 .56 



-.0004 

 .38 



0.17 

 .06 



282 



1.65 

 -.04 



.56 



0.51 



.19 

 .01 



Table 7 — Bid premium cost estimation equations 



Variable 



Northern Region 



Intermountain Region 



Coefficient 



Standard error 



Coefficient 



Standard error 



Constant 



-17.85 



9.55 



-16.09 



9.60 



#BIDDERS 



9.91 



1.02 



5.61 



2.04 



SPLT 



.16 



.02 



.06 



.03 



Stump-to- truck 



-.14 



.08 



-.11 



.06 



Transportation 



ns 1 



ns 



.18 



.11 



Slash 



ns 



ns 



ns 



ns 



Permanent road 



ns 



ns 



ns 



ns 



Temporary road 



ns 



ns 



ns 



ns 



R 2 



.55 





.19 





'ns = nonsignificant. 



