Statistically significant coefficients for cost categories 

 mean that bid premium is systematically related to cost 

 allowances. A negative coefficient means that bid pre- 

 mium is lowered because of this variable, implying that 

 the appraisal's cost allowance was too small. When this 

 situation occurs, cost estimates from previous equations 

 should be increased. A positive sign means the cost allow- 

 ance was too large; previous cost estimates should be 

 decreased. Because cost category variables were 

 measured in dollars per thousand board feet, coefficients 

 are interpreted as a percentage adjustment. 



Most of the variation in bid premium explained by our 

 models used variables reflecting competition and product 

 value— #BIDDERS and SPLT— not cost allowance vari- 

 ables. In fact, the #BIDDERS alone explained 53 percent 

 (out of 55 percent) of the variation in bid premium in the 

 Northern Region and 13 percent (out of 19 percent) in the 

 Intermountain Region. 



We therefore conclude that the cost allowance estima- 

 tion equations previously shown are mostly adequate, as 

 is, with three exceptions. In the Northern Region, the 

 -0.14 coefficient on stump-to-truck cost estimates is sta- 

 tistically significant, implying that these cost estimates 

 are about 14 percent too low. Similarly, significant coeffi- 

 cients for the Intermountain Region imply that stump-to- 

 truck cost allowances there are about 11 percent too low 

 while transportation cost allowances are 18 percent too 

 high. Under these circumstances, estimated cost allow- 

 ances should be adjusted if a better approximation of 

 actual costs is desired. For example, an estimated trans- 

 portation cost allowance of $50/M bd ft for the Intermoun- 

 tain Region should be decreased by 18 percent to $41 if an 

 estimate of actual transportation cost is desired. 



DISCUSSION 



How well do the equations presented here actually 

 model logging and roading costs, and for how long? We 

 do not and cannot know how well our models of appraisal 

 allowances estimate actual costs, because actual cost 

 information is proprietary — known only to the logging 

 operators. The only question to which we can respond is 

 one of how well our cost allowance equations predict ac- 

 tual cost allowances. We think they perform quite well, 

 explaining up to 91 percent of the variation in line item 

 cost allowances. But technological change will cause our 

 models to become out of date in the same way as the cost 

 allowance manuals become out of date. We do not know 

 when this will happen. 



Figure 2 provides another perspective on how well our 

 predicted cost allowances match actual allowances. The 

 histograms show the percentage of predicted allowances 

 within $10/M bd ft of the actual, within $10 to $20 of the 

 actual, and within $20 to $30 of the actual. For example, 

 63 percent of the predicted transportation cost allowances 

 (from our models) were within 10 percent of the actual 

 allowance in the Northern Region; 76 percent of the pre- 

 dictions were within 10 percent of the actuals in the Inter- 

 mountain Region. Because the average transportation 

 cost allowance in the Intermountain Region was $42.99/ 

 M bd ft, that means more than three-fourths of the esti- 

 mated transportation allowances were within $4.30 of the 



actual allowance. Overall, 78 percent of all estimates 

 were within 30 percent of the means in the Northern 

 Region; 71 percent were within 30 percent in the Inter- 

 mountain Region. 



We conclude with an illustration in which we estimate 

 a transportation cost allowance for a hypothetical timber 

 sale from the /ntermountain .Region (TCA) IR . For simplic- 

 ity, assume this sale can be depicted as the mean value 

 for each sale characteristic found important in this study. 

 Those means are displayed in table 8. Table 3 earlier 

 showed that transportation costs could be modeled as: 



(TCA) IR = - 8.93 + 322.43(1/ADBH) + l.Ol(UHAUL) 

 + 0.50(PHAUL) 



Table 8 shows the average diameter of the trees harvested 

 (ADBH = 13.99 inches), along with the average miles of 

 paved and unpaved roads. Using these averages, the 

 allowance is calculated: 



(TCA) IR = - 8.93 + 322.43(1/13.99) + 1.01(12.27) 

 + 0.50(26.56) 

 = - 8.93 + 2.41 + 12.39 + 13.28 

 = $39.79/M bd ft 



This is only about 7 percent off the actual average trans- 

 portation allowance, $42.99/M bd ft. 



The question of bid premium must also be considered. 

 However, adjustments reflecting the effect of errors in 

 cost allowances on bid premium should not always be 

 made. We recommend that if the appraisal's objective is 

 to estimate or approximate Forest Service cost allow- 

 ances, no adjustment should be made. But if the objective 

 is to estimate actual logging and roading costs (or to esti- 

 mate stumpage value where cost allowances are not com- 

 bined with an independent estimate of bid premium), 

 apply the cost allowance adjustments shown in table 7. 

 Finally, if the objective is to estimate stumpage value 

 where cost allowances are combined with an independent 

 estimate of bid premium, cost allowances should not be 

 adjusted; this will preclude the possibility of double count- 

 ing the effect of bid premium. 



Assume the adjustment is appropriate. Then the trans- 

 portation cost coefficient of 0.18 shown in table 7 means 

 that the transportation allowance is 18 percent too high. 

 Therefore, a more accurate portrayal of these costs would 

 be to lower the transportation cost allowance to 

 $32.63/M bd ft (= 39.79(1.0 - 0.18)). 



If the cost allowance displayed in 1985 dollars is not 

 desired, simply convert the allowance to the desired base 

 year. The following tabulation shows a listing of conver- 

 sion factors: 



Factors to convert to new base year 



Year 



Multiplication factor 



1980 



0.7707 



1981 



.8453 



1982 



.8993 



1983 



.9344 



1984 



.9721 



1985 



1.0000 



1986 



1.0261 



1987 



1.0567 



Source: Adapted from BOC 1987 and BEA 1988. 



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