CONTENTS 

Page 

INTRODUCTION ................................................... 1 

THEORETICAL ECONOMIC BASES ............................... 1 

Cost Curves ..................................................... 1 

Short-Run Average Cost Curve ................................ 1 

Long-Run Average Cost Curve ................................. 2 

Assumptions ................................................ 2 

Interpretation ............................................... 3 

Productive Significance ...................................... 3 

Terminology .................................................... 4 

Efficiency and Economics ..................................... 4 

Economies. Diseconomies. and Minimum Optimum Size ........ 4 

Size vs . Scale .................................................. 4 

Static vs . Dynamic ............................................ 4 

Private vs . Social Costs ........................................ 5 

Internal vs . External Economies ............................... 5 

Pecuniary vs . Technical Economies ............................ 5 

Returns to Scale Causes ......................................... 5 

Economies of Size ............................................. 5 

Utilization of Technology and Mechanization ................ 5 

Specialization of Workers and Equipment .................... 6 

Reduction of Resource Indivisibilities ........................ 6 

Collection of Other Causes ................................... 7 

Diseconomiesof Size .......................................... 7 

Differences in Management .................................... 7 

Measuring Economies of Size .................................... 8 

Survivorship .................................................. 8 

Advantages ................................................. 8 

Disadvantages .............................................. 8 

Findings .................................................... 9 

Forestry Applications ....................................... 9 

Statistical Cost ................................................ 9 

Advantages ................................................. 9 

Disadvantages .............................................. 9 

Forestry Applications ....................................... 10 

Economic-Engineering ......................................... 10 

Procedures .................................................. 10 

Advantages ................................................. I1 

Disadvantages .............................................. I1 

Forestry Applications ....................................... I1 

FORESTRY LITERATURE ........................................ 11 

Forest Products Firms and Logging Enterprises .................. 11 

Large Forests ................................................... 12 

ForestTracts ..................................................... 12 

Scandinavian Studies ......................................... 13 

United States Forest Management ............................. 13 

United States Forest Harvesting ............................... 15 

ALLEVIATING SMALL TRACT PROBLEMS ....................... 15 

Tract Aggregation ............................................... 15 

Methods ....................................................... 15 

Measuring Success ............................................ 16 

Problems ...................................................... 16 

Intensive Harvests .............................................. 17 

Small-Scale Equipment ......................................... 17 

Summary ......................................................... 18 

I, iterature Cited ................................................... 18 

Economics of Forest Tract Size: 

Fred Cubbage 

INTRODUCTION 

Economics of forest tract size are crucial in 

determining the available wood supply in the 

United States. High average costs on small tracts 

are a primary obstacle to overcoming the 

underproductivity of forest lands, particularly 

those held by nonindustrial private owners. Effects 

of tract size on average costs are most important in 

mechanized operations. As forest regeneration, 

management, and harvest become more 

mechanized, economics of tract size will become 

more important. 

In this paper, the theoretical bases of economics 

of size studies are surveyed and the forestry 

literature on economics of size is reviewed. 

Numerous theoretical and applied studies of 

economics of size exist, but they require 

modifications to be applied in forestry. World-wide 

forestry literature on economics of tract size is more 

substantial than commonly believed; summarizing 

it provides more knowledge on the subject in the 

United States. 

THEORETICAL ECONOMIC BASES 

Most theoretical literature on economics of size 

refers to industrial applications and most applied 

studies have been performed by agricultural 

economists. Both are reviewed here as a basis for 

studying economics of forest tract size. 

Economics of size refer to the variation in average 

unit costs which can be achieved by varying the size 

of the operation (Gregersen and Contreras 1979). 

Economies of size are achieved when unit costs 

decline as the size of a manufacturing plant 

changes; diseconomies occur when unit costs 

increase (Heady 1952). Economies of size are 

generally achieved at higher levels of productive 

capacity, with capacity being measured in terms of 

the number of units of a standard product that can 

be produced per unit of time (Pratten and Dean 

1965). 

Theory and Literature 

A rigorous definition of economics of forest tract 

size is elusive. Tract size economics refer to 

variations in average costs on different size land 

areas. Varying size tracts are the "industrial 

plants" producing a product (such as seedlings 

planted, trees thinned, or cords harvested). 

However, the actual firms in forestry are the owners 

or contractors performing work such as planting, 

thinning, or harvesting. Therefore, economics of 

forest tract size refer to variations in the costs of 

outputs (seedlings, thinned trees, cords) for firms 

operating on different size tracts. 

The firms performing the forestry work are 

assumed to be of optimal size; their size is not the 

issue of concern and is usually assumed not to affect 

average costs. Actually, different size firms have 

average costs which vary by tract size. But 

economics of size studies assume that the firm with 

the lowest costs for a particular tract size will be the 

only firm operating on that tract size. Different size 

firms may be optimai on different ranges of tract 

sizes. 

Cost Curves 

Studies of economics of size rest on the 

determination and interpretation of the long-run 

average cost curve, which is in turn related to a 

number of short-run average cost curves. 

Short-Run Average Cost Curve 

A firm operates with a given set of fixed and 

variable resources which determine its short-run 

average cost curve. Fixed resources are available 

only in specified quantities in the short run, while 

variable resources are assumed to be unlimited. 

Short-run average cost curves are usually Ushaped. Average costs decline initially as fixed 

costs are spread over more output. Eventually, 

however, average costs level off and then rise as the 

variable resources must be added in increasing 

proportions to the fixed resources to reach greater 

levels of output. 

Fred Cubbage was Research Forester, Southern Forest Experiment Station, Forest Ser-iice-USDA, New Orleans, La. Currently, 

Assistant Professor, University of Georgia, School of Forest Resources, Athens, Ga. 

1 
A separate short-run average cost curve applies 

for each level of fixed resources. Which resources 

are fixed in the short run is arbitrary, depending on 

the observed practices of firm managers, the length 

of the planning horizon examined, and the 

longevity of the resources involved. Fixed factors 

make no difference in the eventual shape of the 

long-run average cost curve, which is the basis for 

determining economies of size in the long run 

(Madden 1967). 

Long-Run Average Cost Curve 

In the long-run, all resources are variable, 

including those that are fixed in the short run. The 

long-run average cost curve of a firm is determined 

by drawing a curve tangent to a series of short-run 

curves for firms (or plants) with differing 

complements of fixed resources (fig.1). The curve 

indicates the average cost of production that would 

be experienced by firms of different sizes under 

assumed price relationships and technologies 

(Madden 1967). 

The long run average cost curve has also been 

referred to as the scale curve (Pratten 1971), the 

planning curve (Heady 1952), and the envelope 

curve (Doll and Orazem 1978). The term long run is 

misleading, since the curve does not imply changes 

in costs as the size of the firm is increased over time. 

It actually shows the static effect of size on average 

costs of production for a series of alternative plants 

built at a point in time, each perfectly adapted to 

and operated at the required scale (Pratten 1971, 

Pratten and Dean 1965). 

Viner (1952, p. 206) clarifies the distinction 

regarding the timeless nature of the long-run 

average cost curve and its implications: "The 

theoretical static long-run, it should be noted, is a 

sort of 'timeless' long-run throughout which 

nothing new happens except the full mutual 

adjustment to each other of the primary factors 

existing at the beginning of the long-run period. It is 

more correct, therefore, to speak of long-run 

equilibrium in terms of the conditions which will 

prevail after a long-run, rather than during a longrun. Long-run equilibrium, once established, will 

continue only for an instant in time if some change 

in the primary conditions should occur immediately 

after equilibrium in terms of the pre-existing 

conditions had been reached. The only significance 

of the equilibrium concept for realistic price theory 

is that it offers a basis for predictions of the 

direction of change when equilibrium is not 

established. Long before a static equilibrium has 

actually been established, some dynamic change in 

the fundamental factors will ordinarily occur which 

will make quantitative changes in the conditions of 

equilibrium. The ordinary economic situation is one 

of disequilibrium moving in the direction of 

equilibrium rather than of realized equilibrium." 

Assumptions.-Each long-run average cost curve 

assumes that technology and factor prices are 

constant for the given time period (Lund and Hill 

1979). It assumes that the latest technology is 

available to all entrepreneurs and that the shortrun cost curves of various size plants are based on 

the latest technology. Latest technology does not 

mean using the same technique for all plants, but 

rather using the optimum technique from a variety 

of choices (Gorecki 1977). Factor prices, adjusted to 

AVERAGE COST 

I CURVE 

i 

UNITS OF OUTPUT 

Figure 1.-The long-run average cost curve. 
the same base year, are constant because they are 

assumed to be perfectly elastic for the individual 

firm (Madden 1967). Firms also are assumed to use 

factors in optimum proportions. If either factor, 

prices or technology, were allowed to change, the 

shape of the long-run average cost curve would 

change and render economics of size interpretations meaningless. 

Interpretation.-Economies of size or scale occur 

where the long-run average cost curve drops down 

and to the right-where unit costs of production 

decline as the size of the plant increases. Strictly 

defined, diseconomies of size occur where the curve 

slopes upward and to the right. However, in forestry 

applications, high average costs on small tracts 

have generally been referred to as diseconomies of 

(small) size. This interpretation, while technically 

not correct, will also be used in this paper since it is 

the accepted terminology. 

Combining the downward and upward sloping 

cost segments yields the U-shaped long-run average 

cost curve. In the long run in pure competition, the 

price of the output of a firm is determined by the 

lowest average cost or production-represented by 

the minimum point on the long-run average cost 

curve. A firm producing at its optimum plant size 

will be producing at the minimum point with its 

short-run marginal cost, short-run average cost, 

long-run marginal cost, and long-run average cost 

all being equal (Doll and Orazem 1978). 

Empirical evidence suggests that the long-run 

average cost curve for most industries is more Lshaped than U-shaped. L-shaped curves indicate 

that there are economies of size up to a certain size 

of output, bud beyond that point, average costs 

neither rrse or faf; much when size is increased. The 

point at which average costs cease to fall is known 

as the point of mininium optimum seale (Bain 1969, 

Pratten 197'1). Seherer 13970) concuded that the cost 

curves of most industr~es are L-shaped. but do start 

turning up at very large sizes, reflecting 

drseeonnmies of scale. In forest land operataons, 

long-run average eostccuri-es are likely to he I,- 

shaped srnce diseconomies are unlrkely until very 

large s-tzes are reached. High average costs caused 

by small tract size are more reievant in forestry. 

Most tong-run average cost curves also are 

as tually scalloped. Li-llnp~ness of technology ~nputs 

makes the Inputs usable only fi?r a gl't7t"n range of 

plant sizes. '6herefore the long-run curve actually 

ci~rnfi;nes many bh<~rt-rlin cost curve hegments. 

rather than i~eing the perfecti> srraooth curve 

obt:;i-tnabie with peritrtiy drv~s~ri:ie units of 

%echni;h,gy iChamberlln 1948) --. Produ; ft~ 0 S,C~~~~L~'SCCLII(Y>~- L hree basrr. economic 

pi-incipies <ire rrnyiiut;int In usrng short- and Itsngr~n average ciist curves in an:ll>7>ing :I f~rm's 

p;ocIiict~ve dec~a-on,- i Madden 1967) F~rst, tht 

short run, a firm will produce only if total revenues 

exceed total variable costs (price per unit exceeds 

the average variable cost). Second, in the long run, a 

firm will stay in business only if total revenues 

exceed total costs (price per unit exceeds average 

total cost). Third, under conditions of atomistic 

competition (perfect competition with many small 

firms), prices will gravitate toward a level such that 

pure profits will tend to be erased. The return to each 

resource will be just enough to keep it from going 

into other uses. 

In manufacturing plants, these economic 

principles tend to eliminate inefficient producers 

who suffer from too large or too small a scale. 

Applying these principles to economics of forest 

tract size depends on the definition of the forestry 

firm. In a "firm" composed of an owner's tract of 

land, owners will produce timber only if the total 

revenues (timber sales) exceed the total variable 

costs (harvesting costs), so the short-run dictum is 

valid. However, the long-run situation is less 

applicable in timber production situations. Longrun costs of growing timber may exceed revenues. 

According to economic theory, forest lands would 

therefore cease active timber production and move 

into other uses. However, they can drift out of active 

timber production and still remain forests with an 

increasing growing stock since they produce joint 

products and may be owned for multiple objectives. 

Fixed costs such as management and taxes are 

borne by other products for many owners. Only at 

the time of potential harvest will these Lands he 

considered for timber production, so often only the 

short-run interpretation applies. 

Where frrms are defined as contractors 

performing services (planting, thinning, 

harvestlngi, the three prrneiples apply as stated. 

Planters or loggers will operate only if their price 

received per unit exceeds average variable costs in 

the short run. Total revenues must exceed total 

costs in the long run. And prices for logging or 

planting contractors have tended to elminate pure 

profits. 

In the economies of forest land size, it is the tract 

as a measurement unit or "firm" or ""pant" which is 

the most applicable interpretcaticin. Atthough tracts 

are not prodrrchtrn operations in the eonvenlronai 

sense, they are the un~d of rnkerest in stud~es of 

;avcrag~ costs ui forest n1ar;;igement. Small tracts 

are likely to have h~gh average costs for i'orestr> 

treatments The> dnit In (;a. (rut cif actrve rrrnber 

yrtiductron depending on:\, cifi the current short-run 

COli?piirtson (fi c#isi+ and revenues lor antrcipaked 

re\enues, ,th 111 the'- tcise of pliintlnj;? a~sl t~n~ber 

~t;:nd iwpr ~i en:e ?i C'ontractlng i!rrms are 

il~se~mir(i trj t~e the *tpproprlatr srLe to perfi=r-m ihc 

kii~h Ofi ctl"?OUh SiPi tC2ICih :~~ld eWC" illit the ' 5" i?^i 

s:Jti helkg htl-~dl~d 
Terminology 

Economics of size studies use a plethora of terms 

which should be defined, clarified. or delineated for 

their use in forestry. 

Efficiency and Ecanclmies 

Economies of size are related to efficiency but 

achieving the most economic size does not 

guarantee that an operation is efficrent and vice 

versa. E-ffliciency has many components. It is not 

easy to define nor necessarily universally desirable. 

A firm is technzcally effic~ent if its production 

function yields the greatest output for any given set 

of inputs, given its particular location and 

envirollment (French 1977). In practice, firms are 

seldom technically efficient. Their actual 

performance relative to the production frontier has 

been called "X-efficiency" (Leibenstein 1966). The 

"X-factors." such as motivation, dedication, and 

aggressiveness of employees and entrepreneurs, 

determine a firm's success at operating on the 

production frontier. Lund and Hill (1979) note that 

an efficient firm always operates somewhere 

tangent to the long-run average cost curve. 

Hou*ever, different firms have varying degrees of 

efficteney. Differences in X-efficiency will be 

refleeted by firms of average efficiency having 

higher per unit costs than firms of best efficiency 

A firm's prtczng efficiency, or preferably rta 

allocative efficiency, requires that it combine inputs 

so that the margrnal revenue products are equal to 

the factor prices (or marginal factor costs). The 

product of the index of technical efficiency and the 

index of ailueative efficiency is a measure oi the 

economic eff~ciency of a firm. h piant may be both 

LechnieaYly and eeonomicaily efficient fbr its scale 

but rneff~crenl with respect do uptrmarrn scale 

(French 1977). Generally, however-, eff~iiciency 

Improvements referred t~ ~rr ~COLBO~ICS ofsize 

studre~ refer to rnokements along the long-run 

average cost curve toward the optlrnurri scale. and 

t~ill be bi. consrder~d here. 

Economies, Dise~.onornig.s, and Minimum 

Optimum Size 

I";i'r~ncin~ies oii~im are r-eflected in decreasing eosts 

per nnit of output and disecununriies are reflected in 

increasing per unit costs. Most literature suggests 

that ~neffi'ieieni scale of firm cccalrs at very small or 

very iinrge pliint or firm sizes. Effic'icienk. .;c;ele usua]ly 

iiccr;is at nlihdiurn to large firm sizes., As stated 

before, forestry disecoxiomies (if sizt: refer to high 

-avckragc; costs on small tracts. Traditional economic 

literature, however, uses the term ~*~.iiseconomY" 

only to refer to high average costs incurred by 

excessively Large firms. 

If the long-run average cost curve is U-shaped, the 

minimum efficient size or minimum efficient scale 

is the lowest point on the curve. This point may also 

be called minimum optimum size or scale, the 

optimum size, or the optimum scale, If the long-run 

average cost curve is L-shaped, the minimum 

efficient size or scale occurs at the crook of the L. In 

cases where the crook is indistinct and unit costs 

represented by the bottom of the L drop only 

slightly. various graphical and quantitative 

criteria have been used to determine the minimum 

efficient size. For example, Pratten (1971) states 

that minimum efficient size in industries is 

obtained at that scale ". . . above which any 

possible subsequent doubling in scale would reduce 

total average unit costs by less than five 

percent . . ." Defining a given percent slope (i.e. 

one or five percent) of the cost function as the 

minimum efficient size may also be acceptable. 

Size us. Scale 

Eeonomres of sue, economies of scale or returns 

to scale refer to varrat~ons in unit costs w~th 

changes rn a firm's output. Pure scale relat~onshrps 

occur only rf all the resources that go ~nto 

productron are ~ncreased rn the same proport~on. 

Economies of srze refer to rnntrng along the firm's 

long-run expansion path, ~nputs are combined In 

that partrcular ratlo whreh mrnrmizes costs for a 

grven output Inputs are not added proport~onately, 

but by thew productivity according to cost. The 

expanston path rs nut tdentrcal to the scale line 

(Heady 1952. Madden 1967, Doll and Orazem 1978). 

Chamberim (1946, wrrtes that there appears to be 

no reason Lo malntaln a constant proportron of 

factors unless entrepreneurs " harbor and 

rnterest in the mathernatrcs of hornogenerty whxch 

submerpeb dherr ordinary entrepreneurral 

objeet~ve " 

Hence, econi~rn1i.s of srze 1s the more wrdely used 

and more appropraake term hs' \artat:on in unit 

costb (Stanton 1978) In practsee, the term& 

economies of size and scale are used 

~nte~~iidngeabiy but drlua3b refer to movement 

along the expansion pat5, not the scale I:ne 

Economies of size are defined En essentially static 

terms. Firms using differing fixed factor 

cornk;iina-bions determine the long-run average cost 

curve at ;I point in time. with uaid costs usually 

lower for iarger output letreis, In a dynariic: 

interpretation, unit costs might fahi over time as the 

csrrnu1;itit-i: volume of output increases due to "ie 
accumulated experience and skill of production 

engineers, supervisors, and workers (Scherer 1970, 

Pratten 1971). Generally the static, or more 

appropriately, timeless (Viner 1952) interpretation 

of economies of size is the more correct and common 

approach. However, the applications are 

dynamic: firms attempt to move toward the 

optimum size over time. 

Private us. Social Costs 

Most studies use market prices for valuation and 

determination of optimum size. The resultant 

private financial optimum may not be a social 

optimum since consideration of everything at 

market prices may underestimate or overestimate 

the social cost of production (Saving 1961). In 

addition, nonmarket costs may affect the accuracy 

of optimum size calculations. Evaluation of 

economics of size in private terms does not prohibit 

examination of social implications such as 

industrial concentration, effects of increasing farm 

size, or problems of small forest tract size. 

Internal us. External Economies 

Economies of size in a firm may arise either 

internally or externally. Internal economies are the 

direct result of actions taken by the operator or firm. 

Examples rnclude overcoming input indivisibilities, reducing project lumpiness. specializing the 

production process, or improving marketing 

(Heady 1952, Doll and Orazem 1978). Low economic 

returns for small forest tracts might be improved by 

internal econornks such as sharing the use of 

machinery, combining tracts to allow 

specialization, or combining tracts to achieve more 

market power. 

External econonzres occur as a result of forces 

outside the firm, such as in a deereasrng cost 

industry. Examples include quality of Local 

transportation facllitizs. stability of government 

programs. access to bankrng and credit systeruls, 

improvement of machinery, and pubiic support of 

research and education (Doll and Orazem 19781 

Research on small-scale technology 11: forestry. 

subsidy program& gavrng preferent~~il treatment 50 

srna%l fr~res"%:aaadowrrers, slid iliniy-term Loggrng 

contracts prov~ded by fcrel*t ~ndustsr~e~ are 

examples of external ecsr;n.nlc% ~es foresi-r.y 

ExternaX factors can be importarit rn iieterrnrr-rsng 

cost va~-Satii)ns by tract size. 

Pecuniary cis. Technical Economies 

Econtamaaies of size may be pecuniary or technical 

in form. Pecuniary or market eci~a~ornkes e:onsist 

mostly of discounts whrch may be available to 

larger firms that purchase factors of production or 

credit in Large lots. E'rice bonuses for large sales are 

also a form of pecuniary economies (Heady 1952, 

Sundquist 1972, Hall and Let'een 19178). The social 

desirability of pecuniary diseconomies is dubious, 

since they lead mainly to a redistribution of income. 

benefitting large firms at the expense of input 

suppliers or small firms (Scherer 19701. In forestry, 

pecuniary diseconomies are more significant as a 

penalty in the form of sales discounts which may be 

received when selling timber from small tracts. 

Technological, technical, or real economies of size 

offer the most promise for firms to improve 

efficiency, They are realized when a firm makes 

better use of labor. material, and capital inputs with 

increasing size. Economists consider real 

economies of size to be clearly beneficial, since the 

resources saved can be put to work satisfying other 

wants (Scherer 1970). 

Technological economies often result in 

substitution of mechanical processes for labor in 

less efficient firms. Technological economies in 

forestry are leading to concern regarding input 

indivisibilities and higher fixed costs. 

Returns To Scale Causes 

Economies of Size 

Frequently cited causes of deereaszng unit costs of 

production with rncreasing firm size include 

overcoming indivisibilities, reducing per unit 

overhead costs, Improving division of labor, 

reducing inventory requirements, and making 

better use of technology. 

Utilraatlon of Technologry and i1/8echanizat~on.---. 

Improved uttlization of technology rand 

mechanlzation of en causes economies of large firm 

size. Large firms may use qualitatlvely dicg ~~erent 

and teehnologicailg more eff~eient uatts or factors. 

part~eularrly rnacbrnery. Large size allows firms to 

select factors from a greater range sf technzcai 

possibllities (Chamberlin 19.28) It also aIlows use of 

large equipment tvh-reh IS too expe?nslX;er "ior small 

operatloris increased use of caprtal aqairprnent maj 

perrnrt large firms to overcome p~.oduet~un 

bottlenecks whrch are f01s"ied qra small fWms 

Wbiie technoingreal breakthroughs and 

mech;an:zation increase efficrency, they also tend to 

Increase the optmum frrm spze for two reasons. 

F'rrst, mechan~zsataon usualiy rakes place on m 

reiatlx ely large scale. Tkerefiire a mechanized f~rm 

must produti. a larger {jestput than must a Babor- 

~ntensive i-nrm to recouc ~ts rncreased fixed costs for 

equ1prnen-t arnvrtlzatror.. 

Second, mechdnr zatr vn may encourage a larger 

firm by rt~dilcayig the requr~rte lamr force and 
minimizing labor coordination problems (Savings 

1961). These reasons combine to make average total 

costs for large mechanized firms less than for small 

mechanized firms. The smaller the scale of 

mechanization and the less the equipment costs, the 

smaller are the differences in average costs between 

large and small firms. 

Improvements or cost reductions in technology 

will shift relative factor use from labor to 

technological capital. Technological innovation 

leads to new least-cost combinations by changing 

the marginal productivity of factors, the factor 

prices, and the input mix (Doll and Orazem 1978). 

The substitution of machinery with high productive 

capacities for labor has enabled achievement of the 

greatest cost economies in recent years (Sundquist 

1972). 

The relative advantage of a large unit depends on 

the cost and availability of labor compared to the 

cost of capital in the form of high-capacity 

machinery. If labor is plentiful and capital scarce, 

more labor is likey to be used, and vice versa. If there 

are low marginal wages and high marginal 

machine prices, small firms would have an 

advantage over Large (Heady 1952, Doll and 

Orazem 1978). An increase in the wage-rental ratio 

would tend to increase the minimum optimum size 

(Levin 1977). 

The small-scale producer may often find no 

advantage IPP adopting new technology because it 

will be idle much of the time and cannot be scaled 

down. This leaves the small operator with a small 

output whrch must bear the full burden of the 

machinery capital costs. Even if Iarge producers use 

the same machines, they have the advantage of 

longer productron runs and lower proportional setup times, wkleh grve them lower costs (Seherer 

f 970). 

Technoiogieal inrr~vation and srrbsequent 

mechanization are the most important factors 

affecting economies of forest tract size, Most 

rnechan-izat~on of forest operations has occurred in 

the last 30 years. It has significantly altered the 

reladike factor costs of iabor and machine capntai 

and shifted the rninrmum economic size of forest 

operations to larger tracts. Mechanization has had 

the most signtf~cant Impact on the long run costs of 

forest regeneratton and harvesting. IAarger and 

more expensive equ~prnent is being used to prepare, 

piant, and harvest, forest stand&, requirrmg 

inereabed prc;dtictioa radeb, ior-rger produet~on runs, 

and reiser moves and set-ups to be economical. Thrs 

trend hab made treatment costs for small tracts 

prohrbrtrve 

Spi~c~aii.zntion iif %i:irit~'r,k ~~ld E~u~P~PzL'T~~ - 

ini*reaseci farm i~utput pro.ildc;ia greater 

opy:,rturlatlts ii:r syei~r;,iaic~trun f.f the laboor force 

and of capital equipment. This improves efficiency 

and encourages economies of size. Increased 

mechanization in forestry has allowed increased 

specialization of the labor force. Specialized 

harvesting machines require trained operators who 

may perform best operating only one type of 

machine, but are very efficient at performing their 

particular task. However, specialization is possible 

only with very large logging firms. 

Reduction of Resource Irzdiuisibil~ties.-Many 

resource inputs are available only in discrete units 

rather than in completely divisible forms. Discrete 

or lumpy inputs are available to the firm only in 

whole quantities or specified size units such as 

tracts of land or pieces of machinery. Divisible 

inputs such as electricity or fuel are available in 

desired quantities. 

Divisible resources are fully utilized and discrete 

resources are often underutilized because of their 

different capacities, even with well-organized firms. 

The smaller the incremental unit of a discrete 

resource relative to the total quantity used by the 

firm, the closer the firm can come to full utilization 

of other discrete resources. Fuller utilization of 

discrete resources is a partial means of reducing the 

average cost of production as the cost of the resource 

is spread over rnore units of output (Madden 1967). 

Full utilization of one resource may not be 

compatible with hull utilization of another, but Large 

firms are rnore likely to achieve the lowest common 

denominator at which all lumpy inputs ean be fully 

utilized. 

Chamberl~n (19481 noted that indivisibiiities only 

make the average cost curve scalloped instead of 

smooth. He reasoned that increased specialization 

and the use of technologically rnore effi'ficrent units 

were far rnore rmportant than indtv~sihilities in 

determining economres of size. 

Nevertheless, in forestry, ini"ciai rndivisibrlities 

are one of the most important causes of economies 

of large size Indivisible fixed costs for equipment 

and transport to the site are the key factors 

determ~nrng economic forest tract size (Row 1973). 

For example, the proportion of indivrsible fixed 

units of administration, management, and 

suyervlsron in relation to the quantity of productive 

man-hours is much greater on a small hanesting 

operanon thdn on ;I large one iOrmrod 2974). 

Many types of equrpment and iabor are d~r~istbie 

in the sense that ;L 1s possible to build uarts with 

smaller eap,ic~tj and ernploy less expensive labor 

or to employ staff c~n apart-trme bnsls. However, the 

cost per unrt of cap:lcrty may be higher because the 

hctors, -it prarcfiabed 11-t small quantities, may be 

less eff~c~c.nt (Pratten 1971) 

Farmers attempt ti) overcome resource indivisluilrtrrs b> slaaring equ~prneat Sirnriar efforts are 
less likely to be successful in forestry since 

competing contracting firms own the equipment 

and would be less likely to share than individual 

farm owners. Indivisibilities may be overcome by 

aggregating tracts to reduce machine set-up times 

and extend their production runs to achieve greater 

efficiency. Improved efficiency of small machines 

could also reduce the optimal forest tract size. 

Collection of Other Causes.-Economies of size 

may be created by various other factors. Returns to 

management increase up to a point. Mastery of a 

given technique-the learning effect-pays off 

more on a large scale. Pecuniary economies of size 

may occur through purchase discounts (Doll and 

Orazem 1978). 

There may be economies in massed resources or 

large numbers. A large business needs 

proportionately smaller parts inventories or 

proportionately fewer back-up machines than a 

small business to avoid risk. Large firms can also 

spread the risk and uncertainty of an enterprise 

over more units of production. Firms may also exert 

pecuniary economies by being large enough to 

monopolize the market (Pratten and Dean 1965, 

Pratten 1971). 

Most of these reasons for lower unit costs are not 

too important in forestry. Management and 

learning effects may slightly increase the efficient 

use of new technology. Forest management 

operations and timber sales are usually so small 

that purchase discounts or sales premiums are not 

significant. Competition is so atomistic that 

monopoly power for fiber growers is virtually 

nonexistant. Row (1973) concluded that large tracts 

have an advantage of reduced risk from fire, 

insects, and disease. However, risk advantages 

probably lower the long-run average cost curve only 

slightly. 

Circumference-area-volume relationships may be 

important sources of economies of size (Giaver and 

Seagraves 1960). In forest operations, large tracts 

which are roughly square or circular in shape will 

usually be more economic than those which are 

narrow and long because the timber will not have to 

be skidded as far (Mondo and Morioka 1965). 

Naturally, there are also greater economies in 

harvesting large trees than in small trees. However, 

tree volume relationships are more likely to 

confound the examination of economics of tract size 

than to determine the economic tract size. 

Diseconomies of Size 

A firm eventually reaches a point where 

economies associated with improving the use of 

large inputs and the spreading of fixed costs are 

completely exhausted and average costs of 

production begin to rise. In excessively large firms, 

a manager's talents can become spread too thin and 

he ceases to make effective decisions (Scherer 1970, 

Doll and Orazem 1978). The more variable, 

complex, and uncertain the resource, the greater the 

strain of size will be on the manager's talents and 

on firm coordination and operation (Madden and 

Partenheimer 1972). Interpersonal communication 

and supervision problems tend to be more serious as 

the number of employees increases. Large 

operations have more problems supervising 

employees and coordinating their activities with 

machinery and other factor inputs (Madden 1967). 

Large firms are less flexible and therefore less able 

to change their products to meet market 

requirements (Pratten and Dean 1965, Eaup 1978al. 

promoting inefficiencies and diseconomies of scale 

over time. 

Transportation costs are important in 

determining disecononiies of Iarge scale-costs 

increase with distance (Scherer 19'70, 1973). 

Diminishing returns to all factors of production 

also cause diseconomies. In particular, if there is a 

fixed factor such as entrepreneurship, the long-run 

average cost curve will rise due to diminishing 

returns to that factor alone (Chamberlin 1948). 

Similarly, technical forces such as limits on 

machines may cause diseconomies (Pratten 1971). 

Most conventional reasons do not cause 

diseconomies of large tract size in forestry. Most 

tracts are too small for problems such as poor 

coordination, overextended managers, or 

diminishing returns. Transportation costs could 

cause diseconomies of size. Large forest tracts 

needing extensive road networks or that are distant 

from markets might have rising average costs of 

production. In practice, diseconomies of large forest 

size are so rare that few have been documented. 

Forest contracting firms could become too large if 

machines begin to interfere with each other or 

managerial talents are spread too thin. But the 

small crews common in forestry preclude such 

problems. In fact, literature references to 

diseconomies of forest tract size always apply to 

small tracts having high average costs. 

Differences in iWanagemenL 

Differences in management abilities and 

allocation of returns to management are important 

in determining returns to size, Increasing firm size 

requires added managerial inputs and talents. 

Large firm sizes require management to be more 

attuned to producing rates of return competitive 

with alternative opportunities for investment and 

resource use. Labor management skills must also 

increase with Iarge firms (Sundquist 1972). For 
these reasons, management tends to be more 

efficient on large firms than on small firms. 

In addition to efficiency differences, the 

accounting methods for calculating the returns to 

management are critical in determining whether 

economies of size studies will find increasing, 

decreasing, or constant returns to size. In 

practicaIiy all agricultural studies, which are 

similar to forestry situations, returns to labor, 

capital, and management are calculated as 

residuals rafter imputing values to other resources 

and assuming constant returns to those resources 

(Olson 1956). It is the calculation and allocation of 

the residual claimant to management which 

determines the efficiency of an operation and its 

average costs (Madden 1967). Improperly 

calculated returns to management will lead to 

erroneous conclusions regarding economies of size. 

Measuring Economies sf Size 

Several approaches have been developed to 

measure economies of size. Each has advantages 

and disadvantages. The appropriate method 

depends on the situation and industry being 

examined, the data available. and the purpose of 

the study. The approaches generally fall into three 

categories: survivorship, statistical cost, and 

economic-engineering. 

The survivorship technique is based on the 

Darwinian principle that only those firms which 

operate at or near the most efficient size will remain 

in business over time. TI-re "cchnique determines the 

optimum size by formalizing the logic that sensible 

men use efficient size industries. It reveals optimum 

firm size in terms of private costs and the total 

economic environment of the firm (Stigler 1958). 

The method examines the proportion of industry 

output accounted for by each plant size group for 

two or more time periods. Size classes that exhibit a 

declining proportion of an industry's capacity 

through time are deemed to be inefficient. 

Conversely, an increasing proportion of the 

industry's capacity in a larger size class is taken as 

prima facie evidence of efficiency and economies of 

size (Madden 1967, Gorecki 1977). 

Advantages.-One of the primary advantages of 

the survivor technique is that it provides a positive 

measurement of the economies of firm size. Stigler 

(1958) asserts that until the development of the 

survivor technique, ". . . economists have been 

ignorant of the optimum size of firm in almost every 

industry all of the time . . ." Since its development 

the technique has been widely used to measure 

economies of size in many industries. It uses readily 

available Census of Manufactures data or similar 

data on firm size (Saving 1961). The technique 

usually works best with atomistic industries 

(Shephard 1967). 

Survivorship measures the ability of the firrn to 

survive in its total economic environment. It 

accounts for institutional or market factors which 

influence firm survival as well as private costs. Tho 

problems of valuation of resources and the 

hypothetical nature of technological studies are 

avoided by the survivor teehnique. It determines 

private efficiency by including all the problems the 

entrepreneur may face, such as strained labor 

relations. rapid innovation, government 

regulakon, changing factor prices, and unstable 

foreign markets. Of course, social efficiency may be 

a different thing and is not measurable by the 

survivorship technique (Stigler 1958). 

Disadvantages.-Critics of the survivor 

technique are numerous and vocal. Even if the 

survivorship technique does tell who survived, it 

does not provide reasons why they survived nor 

indicate if they will survive in the future. Inefficient 

firms may persist for reasons which are 

unpredictable from one industry to another. 

Reasons may include favored treatment from 

government programs, securing hired productive 

services such as labor at lower prices, or 

entrepreneurial absorpt:lon of losses (Bain 1969). 

Shephard (1967) discusses a number of 

limitations of the survivor technique, particularly 

regarding its use based on Census of Manufactures 

data. He concludes that the method cannot be used 

on its own and that its estimates need to be screened 

against other evidence, such as static size 

distribution and analysis of the influences at work 

on plant size. Scherer (1970) concurs that 

survivorship is best employed as a check on other 

techniques due to its ambiguities. He 

writes: "Survival patterns are not always stable 

over time; curious patterns appear (such as survival 

of only the largest and smallest plants); and the 

criteria for distinguishing surviving from 

nonsurviving size groups contain a certain element 

of arbitrariness. Tests on the same industries by 

different analysts have sometimes yielded quite 

different estimates." 

Also, the method gives no insight why some firrn 

sizes are decreasing. It may be that small firms are 

more efficient but choose to grow because they can 

make higher total profits with higher volumes and 

less efficient operations. This drawback may even 

undermine the usefulness of the technique to 

pinpoint efficiency. Another serious weakness of 

the method is its measure of size-a firm's 
proportion of the industry's total productive 

capacity. The measure is highly elusive. 

particularly when an industry's capacity is 

changing (Madden 1967). 

Perhaps the most serious drawback to the 

survivor technique is its inability to forecast the 

shape of the long-run average cost curve or give one 

a direct look at the cost structure of tho firm iPratten 

and Dean 1965). It provides no guidance to 

entrepreneurs planning technical specifications for 

efficient and profitable plants (Pratten and Dean 

1965) nor does it give an estimate of the capital 

return to entrepreneurship which might vary 

significantly from firm to firm and influence the 

size of firm which will survive. As the technique 

implies, firms may survive due to economies of size 

by moving along the long-run average cost curve. 

They might also survive due to different 

managerial abilities among entrepreneurs, 

together with the natural desire to increase net 

annual income or total wealth by a horizontal move 

along the long-run cost curve (Seckler and Young 

1978). Survivorship provides no clues as to which 

effect dominates. 

Findings.-Estimates using the survivor 

technique have customarily found a fairly wide 

range of optimum sizes. The long-run marginal and 

average cost curves of the firm are customarily 

horizontal over a long range or sizes. This finding is 

corroborated by the fact that if there were a unique 

optimal size in an industry, increases in demand 

would be met primarily with proportional increases 

in the number of firms. In practice, it appears that 

most increases in demand are met by expansion of 

existing firms (Stigler 1958). 

Forestry Applications.-The survivor technique 

has limited uses in forestry. It is designed to analyze 

manufacturing industries which have data 

available on plant size and output. Therefore, it 

would be a workable tool for examining economies 

of size in forest industries such as sawmilling, 

logging, or pulp and paper making. However, it 

provides little guidance in measuring economies of 

forest tract size. A modified use of the method has 

been used to examine relationships between 

harvesting equipment size and tract size 

(Thienpont et al. 1976). 

Descriptive and statistical methods to estimate 

economies of size can be classified under the 

heading of statistical cost. Descriptive cost analysis 

involves collection of cost data from business 

records and surveys (Wills 1966) and analyzation of 

the average costs for each plant and cost 

components among plants. Variations in costs 

among plants are explained in accordance with the 

variations in elass averages and other factors 

thought to affect costs. The method is still widely 

used but has limited applications and value (French 

1977). 

Statistical cost analysis is based on direct 

analysis of actual firm records, as is descriptive 

analysis. Statistical cost Looks at firm inputs, costs, 

and outputs and uses a statistical method to 

calculate the per unit cost. To determine the shape 

of the Long-run plant cost curve, the analyst usuaily 

relates average production costs fur a wide cross 

section of plants to output from those plants. Tin~c? 

series data could be used if technology and factor 

prices are constant. Additional factors such as 

percentage of capacity utilization, differences in the 

age of capital stock and technology, changes in 

input and output prices, and differences in the 

volume produced must be accounted for (Scherer 

1970). 

Advantages.-The statistical cost method is 

quick and inexpensive if a firm's records are 

available. Since this method is based on actual 

costs, some people believe the results are more 

reliable than the results of a synthetic analysis in 

which hypothetical plants are constructed based on 

economic and engineering data reflecting advanced 

or better-than-average technologies (Madden 1967). 

Also, the method does not require extensive 

development of complex production functions or 

intricate processes. 

Disadvantages.-Critics of the statistical coat 

approach to measuring costs and efficiency are 

nearly as vocal as those of the survivorshipmethod. 

Complete, reliable data sufficient for statistical 

generation are hard to obtain. Different cost 

accounting methods may impair the comparability 

of data between plants. The economic rents imputed 

to specialized resources, the capital returns to 

entrepreneurship, and the estimates of capital costs 

may be widely disparate or totally unavailable. If 

firms do not produce a homogenous product, it is not 

possible to compare output strictly in terms of the 

number of units produced. Quality differences and 

market imperfections make cost differences hard to 

compare. Any weighting system which tries to 

account for all these differences is likely to use 

judgments which may be inaccurate since it is 

impossible to obtain enough detailed information to 

make such calculations (Pratten and Dean 1965. 

Madden 1967). 

Miller (1977) notes that statistical costs are also 

likely to understate effects of scale on productivity 

because they only measure existing firms which 

have managed to survive. Those with productivity 

too low to survive are automatically excluded from 

the sample. The remaining small firms have special 
advantages, such as unusually good management 

or specialization in low volume products, which 

enable them to do better than would be expected for 

firms their size. Therefore, the average unit costs 

will be underestimated at small firm sizes. 

Also, statistical cost is likely to estimate a longrun average cost curve that is higher than the true 

envelope curve. bast-squares regression, if fitted to 

cost data from efficient and inefficient producers, 

will result in a curve that goes somewhere through 

the middle of the points. The true long-run curve 

would more nearly correspond to the bottom edge of 

the scatter diagram. Therefore, average total cost 

data obtained from actual firrn records do not 

constitute valid evidence of technical economies of 

scale (Madden and Partenheimer 1972). 

French (1977) contains a detailed discussion of 

the data specification and measurement problems 

encountered in statistical cost analysis. His review 

concludes that so many different results can be 

achieved using the same data, even at statistically 

significant levels, that cost functions derived from 

cross-section data are not to be trusted. He adds that 

statistical cost analysis cannot accurately 

determine the long-run average cost curve and the 

appropriate sizes to take advantage of economies of 

scale, In fact, statistical cost methods have led to no 

concensus regarding the general shape of the longrun average cost curve despite the prevalence of the 

method. 

Forestry Applications.-The statistical cost 

approach could be used in forestry to estimate the 

long-run average cost curve for sawmills, pulp 

mills, or logging firms. For example, Berndt et al. 

(1979) used the technique to estimate logging costs 

in British Columbia. Nevertheless, applying the 

method to measuring economics of forest tract size 

has serious drawbacks. Cost and return data for 

different tract sizes might be obtainable. However, 

the wide variability of factors which influence those 

costs would impair comparability of even similarly 

sized tracts. Likewise, the tremendous variability in 

the uses and quality of the product would make 

valid comparisons questionable. The problems 

suggest that, while it is possible to estimate cost 

functions statistically, the results and applicability 

to forest management situations are limited. 

Economic-Engineering 

The economic-engineering method synthesizes 

production and cost functions from engineering, 

biological, or other detailed specifications of inputoutput relationships into a hypothetical synthetic 

firm. It has also been called the synthetic firm 

approach, engineering approach, or building block 

approach (French 1977). 

The approach develops budgets for hypothetical 

firms using the best available estimates of the 

technical coefficients-resource requirements or 

expected yields-and charging market prices or 

opportunity costs for all resources (Madden 1967). 

Using the production functions and cost data for 

the firm, the long-range average cost is determined 

and can be used to estimate the economics of size. 

Successful application requires good engineering 

data, realistic production hnctions, and good input 

and output prices. Production and cost function 

estimates may be based either on cross-section or 

time series data. They may take various 

mathematical forms such as linear, quadratic, or 

exponential functions. They may also use different 

statistical methods such as single equation least 

squares, covariance matrix, factor shares, or 

instrumental variables (Walters 1963). 

Synthetic firm analysis is appropriate to answer 

two research questions (Madden 1967). First, hat 

average costs could firms potentially achieve using 

modern or advanced technologies? Second, what 

differences in average costs are attributable strictly 

to differences in firm size, and not to differences in 

degree of plant underutilization, use of obsolete 

technologies, or substandard management 

practices? Its ability to answer these questions 

makes synthetic firm analysis unique. 

Procedures,-The economic-engineering method 

requires four steps, as summarized by French 

(1977): 

I) The production systems and organization of 

the activities in the firms being studied rnust be 

described. 

2) Alternative production techniques at each 

production stage rnust be considered to develop the 

cost curves. 

3) The total firm production is obtained by 

combining the production functions for various 

stages or components. 

4) Once the underlying input-output 

relationships have been specified, the cost 

functions are determined by mutiplying the input 

prices times the quantitites of inputs used. 

Equipment capacities may be determined by 

measurements in selected plants or from 

manufacturer's and engineer's specifications. 

Observations need to be made of space 

requirements for equipment use, storage, and 

production, and also for traffic movement. 

Variations in crew organization, equipment use, or 

work procedures may be possible. Labor 

performance data needs to be estimated by field 

time studies, standard work tables, personnel 

interviews, or payroll inspection. Costs for machine 

time need to be calculated. Input-output standards 

with time for rests, delays, breakdowns and the like 
need to be developed. Production rates for the 

processes need to be determined. The input-output 

relationships need to be formalized into 

mathematical production functions. Often, 

manufacturer's historical data can be used to serve 

as a check on the data and to establish the 

credibility of the component production functions. 

Short-run cost functions must be developed using 

the production functions. n'ext, the long-run cost 

functions are developed by one of two methods. The 

most common practice has been to construct several 

model plants of varying capacities and then to fit 

envelope functions to the short-run curves either 

implicitly or explicitly. Where there are several 

alternative production techniques at several stages, 

the most efficient procedure may be to estimate the 

long-run cost functions by stages and then to 

combine the cost functions into a total long-run cost 

function. 

Advantages.-The economic-engineering 

approach avoids many of the problems encountered 

in strictly statistical studies. It can be applied in 

cases where accounting record data are not 

available and can more readily handle multiple 

products and dynamic cost functions. It is usually 

the only approach possible when the objective is to 

compare methods or develop improved methods of 

operation (French 1977). A principal advantage of 

the engineering approach is that it enables other 

conditions such as the state of the arts, the quality 

of the factors of production, and relative prices to be 

held constant when making estimates (Pratten and 

Dean 1965). The method has some disadvantages, 

but is generally considered by rnost economists to 

provide the best single source of information on the 

cost-scale question (Scherer 1970, Gc~eeki 1978). 

Disaduantages.-The disadvantages of the 

economic-engineering approach are nod as serious 

as the other two methods, but should be mentioned. 

The approach seldom finds any diseconomies of 

large scale because it usually uses constant input 

proportions for management, sales, and service 

activities (Stanton 1978). Practically, this is a hirly 

small distortion, particularly in forestry, since the 

firm long-run average cost curve is often L-shaped. 

The method is best at estimating technological 

production functions but often makes crude guesses 

on nonteehnological aspects such as marketing 

costs, transportation, and labor relations. This 

shortcoming can be ameliorated by using better 

information from cost accountants and managers 

to quantify these factors (Gorecki 1977). There may 

also be problems in representing the process as a 

whole because individual processes may interact 

with one another to prevent strict additivity. 

Allocating joint factor costs is also difficult in 

evaluating the output of one product (Walters 1963). 

The economic-engineering approach places 

heavy demands on the investigator's time and 

finances. The amount of technical data required to 

synthesize production and cost functions can be 

very expensive compared to the statistical cost 

method (French 1977). Because synthetic firm 

models cannot be tested in the field except when a 

firm or individual uses the results to make an 

investment decision, they must be verified by logic 

and examining the methodology and assumptions 

of the model (Stanton 1978). 

Forestry Applications.-The economicengineering approach is the best method for 

examining economics of forest tract size. It is the 

only technique which allows comparison of 

alternative forest management methods for a tract 

of timber and examination of improved methods of 

operation. It also makes it possible to hold constant 

endogenous but influential factors such as 

topography, species, or volume. Also, the economicengineering approach can build on a number of 

previous studies to help analyze productivity of 

different man-machine production systems and can 

use previously developed yield and production 

functions. The method is also the best of the three to 

account for product variability, and has been used 

rnost often in forestry. 

FORESTRY LITERATURE 

I\ $\ 

Literature on economics of forest tract size is not 

plentiful, but some studies have been performed. 

Many publications discuss problems of tract size in 

general terms. Only the articles based on specific 

studies are reviewed here. 

Forest Products Firms and Logging 

Enterprises 

In an examination ol international pulp and 

paper prices, Buongiorno and Gilless (1980) found 

economies of scale only in paper and paperboard 

production, particularly in nonculturai paper 

production. Several researchers found economies of 

scale in sawmilling but noted that suboptimal firms 

are still prevalent (Mead 1966. Dobie 1971, Buford 

1974, Granskog 1978). A I953 study of forest 

products firms showed that large firms may be more 

efficient, but that they might have higher overhead 

costs which the smaller operator can avoid (Weber 

1953). Buford (1974) notes that small mills can 

minimize costs by serving specialized or local 

markets, employing nonunion labor and not paying 

fringe benefits, avoiding advertising, buying 

second-hand equipment, or producing a lower 

quality product. 
Ramonov (1966) and Sutton (19731 wrote that in 

logging costs, economies of large operations were 

not very significant in the countries of Russia and 

New Zealand, respectively. They found that 

improving the work method and increasing labor 

productivity offered much more promise for 

reducing costs than increasing the size of the 

enterprise. Berndt et al. (1979) used a statistical cost 

method to find that for the existing range of logging 

operations in British Columbia, the operations 

exhibited constant returns to scale. The studies 

indicate that within a given range, slze of the 

logging entgerprise is not important in determining 

forest harvesting costs. 

Large Forests 

Using budget analysis of state forests in 

England, Sinden (1966) found that large units could 

reduce budget expenditures. If forest workers were 

allowed to move freely through a larger 

amalgamated unit, budget expenses would decrease 

at least two percent. 

An intensive and well-documented English 

language study on economies of size was performed 

by Sutton (1968, 1969, 1973) in New Zealand. He 

studied economies of forest size for management of 

New Zealand state forests, composed mostly of 

exotic Pirzus radiatti. Indirect or overhead costs of 

general administration, camps and hostels, repairs 

and maintenance of roads, bridges, and buildings, 

and fire prevention (including prevention and 

suppression) decreased significantly with 

increasing forest size. 

Per unit overhead costs for relatively small 

forests of up to 2,000 acres were about five times 

those of the largest forest of 292,000 acres (Sutton 

1968). Using the soil expectation value to calculate 

the difference in land values causes by higher 

overhead costs, Sutton (1969) determined that sums 

ranging from $30 to $80 per acre could be saved by 

purchasing land next to large forests (more than 

200,000 acres) rather than next to small forests (less 

than 2,000 acres). He concluded that the primary 

indirect cost advantages of large forests were lower 

per acre overhead and administration costs as well 

as some advantages in fire and pathological 

control. Spreading of these fixed costs is enhanced 

by locating or purchasing tracts adjacent to the 

largest state forests (Sutton 1973). 

Large-scale forestry should offer more 

possibilities for increasing efficiency through 

rationalization, mechanization, method 

development, and labor specialization than smallscale forestry. However, Sutton (19'73) found no 

significant direct cost advantages of increased size. 

He found that large-scale operations did not insure 

the towest costs, but that they did seem important in 

preventing high costs. He concluded that better 

management, methods studies, and competition 

reduce direct costs more than increasing the scale of 

operations. 

Diseconomies of excessivley large forests have 

received little attention, for just cause. A Russian 

study concluded that management efficiency was 

best up to an upper limit of 100,000 hectares in 

Central and Southern Siberia and 500,000 hectares 

in the n'orth (Sudackov and Vitalev 1967). The 

Russian findings and the New Zealand study 

indicate that large-scale diseconomies are not likely 

to be relevent to forestry in the United States, or 

other countries composed primarily of small forest 

land holdings. 

Forest Tracts 

Diseconomies of small tract size reflected in high 

average costs are thought to be a primary reason for 

the presumed underproductivity of nonindustrial 

private forests, as well as other small forests. The 

small average acreage, often less than 100 acres, 

makes the costs of management and harvesting 

excessively high when compared with larger forest 

industry and government holdings (Row 1978). 

Diseconomies of small tracts place the owners at 

a competitive disadvantage and prohibit intensive 

forest management on a commercial basis unless 

the land is better than average site quality, They 

also prohibit commercial sales from thinnings and 

harvest cuts since the volumes offered are generally 

too low (President's Advisory Panel 1973). Small 

owners have efficiency-related problems such as 

illiquid investments and poor cash-flow (Glaseock 

1978), higher risks of loss to fire, insects, or disease 

(Row 1973), and more market risk or uncertainty 

regarding the prices they will receive for their 

product (United States Department of Agriculture 

1978). 

Row (1978) enumerates many of the secondary 

effects of small tract size that may cause 

disecono~nies in timber growing: ". . . owners of 

small tracts also gain less from the unpriced time 

and attention they devote to contracts with public 

service personnel, consultants, loggers, or 

treatment contractors, to considering offered advice 

and information, and to doing work or having work 

done. 

Moreover, other factors-incompatibility with 

the owner's objectives and priorities, shortage of 

investment funds, lack of information on product 

values and investment opportunities, experiences 

with poor logging-may have less influence when 

owners are considering operations that may bring 

thousands of dollars instead of hundreds. 
In addition to owner's attitudes and perceptions 

of financial gain, economies of tract size affect the 

cost of delivering assistance. Difficulties of 

assembling small tracts may partially determine 

how readily forest industries may develop 

economical management units, and thus may 

change industry location and markets. 

Administrative costs are higher when wood is 

bought from many small tracts rather than a few 

Large ones." 

Federal income tax pros~isions allow forest 

owners to expense a large proportion of their costs 

immediately and to pay only capital gains tax on 

the proceeds from growth. While these are 

essentially scale-neutral, they tend to be taken 

advantage of preferentially by owners of large 

tracts (Row 1973). 

Sutton (1973) discussed several efficiency 

advantages of small private forests which might 

offset their disadvantages. First, their timber could 

be sold on the free market at any time depending on 

the price. The owner can avoid financial Loss with 

only minimal risks by holding the timber. Second, 

and most important, small owners have much more 

flexible management and are often the first to 

accept new techniques. Third, small forests have 

low overhead and administration costs and can 

often use state roads instead of building their otvtl. 

Lastly, since small owners have no national or 

company interests or status to worry them and 

since they are spending their own rather than 

someone else's money, they have every direct 

incentive to reduce costs and sell on the best market. 

Sutton supports his points with a New Zealand 

Forest Service study which found that small forest 

growers had only two-thirds of the growing costs of 

large private companies. 

However, the advantages of small woodland 

owners enumerated by Sutton are not enough to 

overcome the many diseconomies of small size. In 

fact, several studies confirm that small tract 

diseconomies significantly increase average 

forestry costs. 

Scandinavian Studies 

In Norway, Noer (1975) used the economicengineering approach to evaluate the effect of the 

size of forest holding on 12 cost and yield factors. 

Noer's study was conducted using hypothetical 

parcels 1,000 meters long, consisting of four 

different widths-yielding 1, 5, 20, and 50 hectare 

tracts. Model 100,000 hectare forests were composed 

exclusively of a given tract size. 

The study estimated the costs of small acreages 

compared with the largest acreage for three 

different harvest levels. Costs on the 50-hectare 

tract were usually the basis for comparison, so costs 

reflect comparative costs, not Local costs by tract 

size. The present value of additional forest costs for 

an infinite time period were calculated to arrive at 

the figures shown in table 1. 

Table 1 indicates that one hectare tracts suffer 

greatly from increased costs. Even five hectare 

tracts had costs almost double the 30-hectare 

parcels. Tracts of 20 hectares suffered 

comparatively less cost increases with a few 

notable exceptions. Significant losses still occurred 

due to needs for longer transporz routes, lower prices 

received due to small volumes of high-grade timber, 

higher border maintenance costs, and higher stand 

management costs. In the one hectare class, large 

relative costs were also incurred for moving 

machinery and crews, logging along neighboring 

properties, marketing difficulties, logging along 

tract edges, cultivating the stand, managing the 

stand, and planning operations. 

Andersson (1965) used a synthetic model of a 

36,000 hectare forest on an even-aged 100 year 

rotation to examine highly mechanized versus 

conventional forestry nlethods in Sweden. The 

analysis included all the costs of management and 

operation of a forest enterprise for the two 

alternatives on tracts varying in size from 11.5 to 

360 hectares. For annual treatment areas ranging 

from 45 to 360 hectares (corresponding to a harvest 

of 1,800 to 14,000 m. 9, the variation in average costs 

was less than 5 percent. When the annual treatment 

size was below 30 to 40 hectares (1,200 to 1,600 m.' 

harvests), costs increased rapidly, especially rn 

highly mechanized operations. Anderson noted 

that if revenues remained constant and 

independent of the size of the annual treatment 

unit, the profit of the enterprise would decrease by 

as much as operating costs increase. 

U-nited States Forest Managemend 

Row (1973, 1974,197'7, 1978) addressed questions 

regarding economics of tract size. He developed an 

extensive computer simulation model using the 

synthetic firm approach to analyze financial 

returns from southern pine timber growing. As part 

of his study, the simulator package tested the 

sensitivity of financial returns to the area of the 

tract. 

In an analysis of Forest Service data, Row (1943 

found that fixed costs in forest management were 

the primary determinants of average costs for 

forestry operations and that the size of the fixed 

costs was directly related to the level of 

mechanization. The effect of planning, 

administration, and inspection for each tract on 

average fixed costs was reduced when several tracts 

were combined into one tract. Average fixed costs 

increased when separate tracts were added to the 
Table 1.-Capztufzzed volue of annual forestry cost terns for dcfferent size tracts. (l\iorweg~an 

Kroners] I00 hectares)" -- 

Description of Land size class 

cost factor (hectares) 

1 5 20 50 

Spot marking for access roads 

Boundary searching during spot 

marking and planning 

Moving machinery, crew 

Plowing snow for access 

Extra costs for hard !ugging - neighboring property 

Extended ground transport 

routes to not cross property 

Markettng d~fftcult~es - 

tnsuffrc~ent volumes of 

hrgh-quality trmber grades 

Harvest losses on edges 

Increased cult~vatton costs 

after planttng 

Border hne maxntenance 

Stand management 

Operatton planntng costs 

Total value cost of Items 

Total addlttonal costs ~ncurred 

by smaller tracts compared to 

50 ha tract 

From Noer (1967). Product~on of 0 3m' of wood per 100 ha. per year, 1967 prrces, annual costs 

cap~tal~zed over ~nftntty at a 4 percent tnterest rate 

contract, compared to the same acreage composed 

of one contiguous tract. Average acreage per tract 

also influenced variable costs slightly. Therefore, 

tracts should be contiguous if combining tracts to 

decrease costs is to be successful. 

Row's study analyzed southern pine forests under 

three different managment regimes. He concluded 

that most economies of size could be obtained in 80 

acre tracts. Below that, fewer management regimes 

had acceptable rates of return. At 20 acres, only 

intensive management of natural stands yielded 

positive returns, For 10 acre tracts, no management 

regimes offered an acceptable investment 

opportunity. Profitable tract sizes were smaller on 

Inore productive sites. Row felt that the fixed costs 

of treatments were more important than the fixed 

costs of marking timber sales and removing timber. 

Management of natural stands on eutover sites 

had a substantial advantage over plantations for 

most small owners, largely because of the large 

fixed costs of site preparation and planting. Of 

course, this assumes that natural seeding will occur 

satisfactorily. Plantations were more competitive 

on tracts of 40 to 80 acres, especially using 

genetically improved stock. Row's model 

determined that small tract sizes also increased the 

variability of returns and the risks from loss, 

particularly fire. 

Statistical cost research performed by Wikstrom 

and Alley (1967) on cost control for National Forests 

found that the size of the area was the most critical 

variable affecting forest management costs. 

Management practices examined included 

slashing, burning, piling, terracing, pruning, and 

thinning operations. For all practices examined, 

cost per acre increased rapidly with decreases in 

size of area, particularly for areas smaller than 40 to 

50 acres. 

Average cost curves determined by the authors 

were generally L-shaped. Dozer terracing and tree 

planting were very costly on tracts Less than 15 

acres and descended toward their minimum at 

about 50 to 60 acres. Prescribed burning was 

exceedingly expensive on tracts smaller than 25 

acres and did not approach its minimum average 

cost until 125 to 150 acres. Wikstrom and Alley 

concluded that for most forest management 

practices, cost per acre increased rapidly with 

decreases in the size of area, particularly on areas 

smaller than 40 to 50 acres. 

Vasievich (1980) also found economies of size in 

prescribed burning on southern National Forests. 

We developed L-shaped inverse function cost curves 

that did not approach their minimum level until 

about 1,000 acres. Gardner (1981) found that large 

tracts (50 acres) have lower average reforestation 
cogts than small tracts (2 to 20 acres). However, 

investments on nonindustrial private tracts as 

small as 5 to 10 acres could return an acceptable 

investment level of 6 percent when subsidy 

payments were included in the financial analysis. 

Even without subsidy payments, most reforestation 

methods provided adequate returns on TO to 20 acre 

tracts, assuming no stumpage discounts were 

applied to the timber crop. 

LTnited States Forest Harvesting 

Hunter (1980) found decreasing tract size 

statistically significant in decreasing stumpage 

prices for pulpwood, supporting the hypothesis of 

higher harvest costs on small tracts. I-lowever, he 

did not find that to be the case for sawtimber. 

Researchers at Virginia Polytechnic Institute 

and State University (Thienpont 1976, Thienpont et 

al. 1976) surveyed completed logging operations in 

the Southeast to determine whether small tract 

sizes had sufficient volume to amortize both fixed 

and moving costs for different harvest systems and 

still provide a profit. They found that mechanized 

systems required at least 50 acres or 500 cords to 

harvest an area. Bobtail truck systems dominated 

the harvesting of small areas or volumes. If bobtail 

crews ceased oprratnng, small tract supplies would 

not be eeonom~cat for present pulpwood harvests 

However, volumes on small tracts would then 

Increase and harvests might become eeunomreal In 

the future. 

Walhridge (1967) found that for highly 

capitallzed harvest systems, careful atdentlor? must 

be pad to the frequency and length of the move. 

Mo\e drslances rn excess of 10 miles rnto tracts of 

less than 200 cords total volume urere found to be a 

sign~fieant fafactl>r rn the total cost of hars-esting for 

rnechan ized isk-r dderl sy stems. 

Cubbage (1981a), usrng an eccsnom~c-engineering 

approach. found that large tree-lengdHi syedemx. 

hrghiy rnechanlzed full-tree systens, and wholetree chippreg &> stems incurred high at erage 

harvest costs on small tracts of land Such traets 

generally had average harvest costs as ~TZI ab C)T 

Lower than piin\ entrc~naf southern prne shori wood 

hariest~ng systems, hut: d~d plot appl-oackl thew 

xpllnimurn cost level untrl about 60 to 920 acres 

depending on the degree of rnechnnr~nt-tcin and 

eaprt;ar rnlestrnpct in rhr s.vstprn As lung as cost 

cornpetlt?ve stump tc- stump bobtar1 s~sternb and 

shca:"t\\oiili prel;aulel 4*vstem~ are iit exrstence 

drstconomres of sm,zii tlcxct size should rrot be a 

concern When or allere .such systems awe not 

pz**sc.ck ;I sulfrc~en"r.nilrn"i~:, srn;bil tracts tzrtjuid 

brrt,mc uni3cciDorn;c t.1 harvest at equrl-ibr~um re~~li 

and coiltl <li"t pr~( cab 

ALLEVIATING SMALL TRACT PROBLEMS , 

To overcome economic problems of small forest 

tract size, various institutional arrangements are 

commonly proposed. These include technological 

developments for equipment, cooperation among 

landowners, tract aggregation, intensive harvests. 

or similar methods to increase effective tract size or 

volumes. 

Tract Aggregation 

Garratt (1957) suggested that is is low volume per 

se, not low volume per acre, that is the cause for 

inefficient and expensive forest harvesting and 

management. This contention is the basis of many 

programs aimed at pooling resources of landowners 

in a given market area to increase total volumes and 

to provide larger and more efficient units for 

management. Numerous foreign authors 

(Streyffert, Sweden 1957; Kondo and Morioka, 

Japan 1965; Kantola, Finland 1967; Noer, Norway 

1975; Iktkisto, Finland 1976) and United States 

authors (U.S. Senate 1959, Sizemore et al. 1973, Row 

1973. Row 1978, Stoddard 1978) have proposed 

various methods of cooperation between small 

private landowners to increase effective tract size to 

take acivantagi- of large-scale mechanization or 

other methods to reduce the cost of treatments. 

Purchirse of or exchange for adjacent tracts are 

posqihle means of consoiidad~ng ~nduatr~al or public 

foret--t land holdtngs Tracts adjoining exibtlng 

koidzargs ran be grven preferential designations rn 

Fo~ese Servrce acquis~t~ons In the East or by forest 

~nJustr~cls thi-oughouc the ljnrded Statea 

E;xeh;inglng ~solated tracts for adjacent traets 

would enlarge hact sizes. but getting owners to 

agree tin the talue of possible land exchanges is 

d~ff~c ult. 

For most nunlndustr~al prrvate owners, purchase 

or exchnrige to improve timber production is not an 

optron. They need other insitrtutionai 

urriingernents to combine operations and reduce 

average lrxed costs. 

?il,?ny smnii and medium sized tracts are teased t, 

forest prori~cts Irrms, u hu absorb the small acreagt) 

:n thew holdings for all practreai purposes and 

is,anagc. Ibe ii-,ili'is ns the3 do thew own (S-iegel and 

Guitenberg L96F, Siege1 1973) Forest ~ndusiries are 

also heginn~i~g to provrde Iandowrrer absrstnnce 

pogr~aiils which may serve to aggregate sales and 

~fieiat~ons rn thear. area (Taylor and "SYrlkersctn 

i977 Forei-t F'triner 1977, Amerrcan T%t?lpwood 

Asses a,:tron 1977, Southern Fc,r eht PI odu~ kh 
Association 1979). Consulting foresters and land 

management firms may manage small woodlands 

and schedule or pool operations on a number of 

properties so that they reduce the impact of separate 

contracting for services (Pleasonton 1968, 1969; 

Humphries 1979). While the receipts from joint sales 

are not pooled, owners nevertheless receive higher 

prices than if the sales had been ~solated. State 

Service Foresters may perform similar services. 

Associations of landowners are a method to 

overcome disadvantages of small tracts and to 

improve marketing power (Cloud 1969, Sizemore tt 

al. 1973, Stoddard 19'781. The associations often 

seek only to provide treatments at lower costs to 

members or arrange sales on a joint basis. Most 

associations and cooperatives have been proposed 

or established under the sponsorship of public 

agencies. 

Elaborate organizations furnishing members 

with everything from stand establishment to 

harvesting, marketing. and manufacturing of 

lumber and other products required large 

investments. Even so, they were under-financed, 

became oker-extended, and as a result, folded. 

Mecomb (1975) d ocuments several, however, which 

were successful. These modern co-ops have been 

more modest in scope. They require little initial 

investment, usually utilize governnlent costsharing assistance, and are most likely to employ 

only one full or part-time employee, depending 

instead on members and agencies to contribute trme 

and other assistance. 

Kantola (1967, 1974) discusses more elaborate 

cooperative measures small farms c~uld undertake, 

Forests could be planted in small scattered fieids 

where agriculture is no longer economically 

feasible. Stands to be harvested each year could be 

concentrated around certain roads selected by the 

forest owners or thew associations and yarded to 

common roads. Work sites could he concentrated by 

a forest owners association. 

Putkisto (19761 describes the extraordinary 

cooperation achreved among private Lsndowners ~r, 

Finland. Cooperating owners allow, adjacent 

stands "c be treated as single units for piann~ng and 

harvesting puzpn~es Compeer tion among 

crmpan-ees has even Seen abzndone~li e?o that WOOC~ 

purchases have been rationalszed for optrmurn 

;ff~cien@y :and el:minatron of miss-cb-oss~ng 

transpcirtatron ,eufrs Wood pric~b rcm31n high 

because of ~ncleased al-rirzatir,m and anaucii prrce 

rpegotiatlons ber-6; een forest i;indovdner3b 

bssuer-it-iong and ~i,in:~faclurer.; Obv-er,uts2y, ageh 

c~obe ;~~i~p~r;-ticn 18 hlnl:k6*ij- in the Unrted state& for 

21 laix;g Vmr. *~~s-ze- Ho\\eve: sitn~t new1 ~ftorti ~t 

C,)OF~TRCIO~ hhitc been made recently. 

'The ;retx fiirr.,~ f,~\l:;, :a group cf pribate forest 

"1*1do;~nt z- ,,r,,i*aaied snforrnallj M ~th :t fox kbt 

products company, is an arrangement popular with 

some companies in the South (Pleasonton 1975). 

Landowners get help in managing their forest 

acreage and the company gets preference in buying 

timber from them. Lands close to mills and 

company lands can be managed more economically 

as part of a larger unit. 

Forest industry tree planting at cost on 

nonindustrial private lands is also popular. 

Government aid, such as credit and loan programs, 

subsidy payments, and favorable taxation have 

been proposed or instituted to help make small 

landowners9 production of timber more economic, 

but it is doubtful that these actually encourage 

combination of tracts to achieve real economies of 

size. 

Measuring Success 

Improved efficiency is the criterion for measuring 

successful combination of tracts. Efficiency is 

denoted by increased product~vity and Iower 

average costs. Productivity improvements and cost 

decreases could be measured dxreetly on individual 

and aggregated tracks or could be measured in 

economic-engineering studies. They might also be 

measured by indirect indicators. 

Kondo ad hlorioka t 1965) used a circle-eo-area 

ratio method Lo measure whether combining tracts 

increased the un~ty of an area in Japan, which 

would tn turn increase the productivity of 

mechanized harvests (fig. 2) They found that by 

comb~niag similar tracts held by different owners, 

the land unity increased on -10 percent of the tracts 

in one forested area and 60 percent in another area. 

The remaining possrbie eom"onalions drd not 

Increase the unity of forest Lands or ctlnslsted of 

tsolated forest tracts They also hund thatthe total 

land area falling within the circle increased from 

two to nine tunes tho origanal area, a dramatic 

rnerease for improving $hi: gruduetrvity of 

mechanical forest operatioiss. Slmrlar esdarnates of 

potential prodacnrvit) incrcaseb could be made rn 

the Unrted Skates. 

Another measure oi'di~pkr~i~a of forest lands was 

developed by Seh~rrn (196b: He propoised a 

rnadhem;at:chi 3ndex to caicclste thc ~~,ncentradrc-n 

of fcresk jdnd d3 a share of the o$erali land area. 

T~IL~ annex, whrch was ah dppi~ed by Pvlnrszalek 

ri969,. could ;tPbc, kt. used to c,lcuiate the 

eoncentrali~~n of a partr~ui~tz type of tract or 

ha1.s estrng un~t 

7 ~ C;ombin'rnp tracts to aciareire ei;ormi~mies of size is 

not witbomrt dr;a~*~bucki;. Zl~dependcnt fi;rest 
landowners generally oppose infringements on 

their property rights, even for the sake of efficiency 

and higher profits. Even in countries such as 

Germany and Switzerland which have progressive 

forestry programs, owners have shown little 

interest in forestry cooperatives (Bont 1975, 

Larnmei 1976). The inherent independence of most 

United States landowners, especially in the South, 

precludes most formal or legal cooperation. 

Independent Landowners may be reluctant to 

cooperate because they do not want to give up their 

flexibility for selling by leasing (Vardarnan 1970), 

Figure 2.-The iargesr cirt1r:lund rctio as e ni;>n~urrrni~r?i of?ract 

unity, C rnorc. riliifttd ihcsr? A: A n7i;rij ti~nii N. 

Sourciz: Kortdo and illiiriokil i96~i. 

do not trust government or government employees 

(Ormonde L976), or want to retain their abriity to 

divide tracts into smaller units. 

Successful programs are likely to employ less 

binding arrangements such as tree farm families or 

joint sales with clearly separated costs and returns. 

Even with rising- wood costs, it is questionable that 

complete integration of small kvoodlands is the best 

way to deploy scarce managerial skill and promote 

good forestry because of the danger of weakening 

the owner's personal interest (Brandl 1974). 

Administrative costs increase with both formal 

and informal cooperation. Efficiency gains could be 

negated by excessive proliferation of organizational overhead costs, particularly in extensive 

management (Row 1974. Putkisto 1976). 

Intensive Harvests 

Another proposal to increase economies of size is 

to increase the amount of even-aged or strip cutting 

to increase the volumes removed (Woiekanlp 1965. 

Jarck 1966, Walbridge and Carnisa 1966, Sundberg 

1966, Silversides 1972, Ormrod 1974). The proposal 

has merit for industriai and perhaps some publie 

lands, but runs aground on the landowning 

objectives sf continuous tree cover, scenrc forests, 

and wildlife promotion held by many nonindustrial 

private forest owners. Therefore, its application will 

be limited by the owner's objectives. 

Small-Scale Equipment 

A scaling down of present maehtnery or 

development of small-scale technology has been 

suggested to overcome problems of high 

management and harilestrng costs fur mechan~zed 

systems operatrng on small tracts (Raup i97bb. 

Gunter 1979). Var-rous modrficaL~ons of farm 

tractors and small trucks have heen suggested 

(Hobson 1959. Harmon 1970, Ormrod 1974, 

Orn~cinde f 976) Other posslS~?~tles are scaled down 

versrons of fully mechantzed systems----smaller 

feller-bunehers, rubber ksred skrdders, and ch~pprng 

rnachrnes Ideally the eqtalprnent 6hiiuld be 

designed to fit the srl.v~cultuzemployed ;izrnrmi7r 

fixed and operad~ng casts, and rnalntain hrgh iievels 

of mechanized productrv~d_t (Gunter 1979) 

Again, the concept has drawback.: Small scale 

tqurpment 1s not as product~tr, even 

proportronalely, as large equrpment At present, 

mechani~ed small scale systems harip not proven to 

be sn econorn~eal alternal~t c. to large-hcalc 

equipment (Cubbage 1981b) A-. suggested b> 

Pratten (1971) small equipment'& dower 

produeticrty to cost rat10 makes &mail sj stern& bci.; e 

hrgh aterage costs, eten OM srncill tracts 
SUMMARY 

Keoclassical economic literature and empirical 

studies provide the theoretical foundation for 

analyzing economics of size. Economics of size 

studies are based on examination of the long-run 

average cost curve or envelope curve of a firm which 

has the possibility of using different technology 

and factor combinations to produce a given output 

at a point in time. The minimum point on the longrun average cost curve is usually referred to as the 

minimum efficient size or the optimum size. Better 

utilization of technology and mechanization, 

specialization of workers and equipment, reduction 

of resource indivisibilities, and other factors create 

economies of large size. Managerial limitations and 

diminishing returns to factors of production may 

cause diseconomies of size in excessively large 

firms. 

Empirical industrial and agricultural studies of 

firms have used three approaches for measuring 

economies of size. The survivorship method 

determines optimal sizes by inspecting trends rn the 

size of surviving firms. The statistical cost method 

attempts to statistically estimate the long-run 

average cost curve of the firm based on data from 

acccrunttng records of existing firms. The econornicengineering approach estimates production 

functions for the component production processeb 

and applies the factor prices to the production 

funct~ons to determine the long-run average cost 

curve and optimum firm size. 

Studies of economics of size tn forestry rnci-ir.ate 

that the causes of economies oi swc are drfierent 

those found in most industr~ai or 

rna~zufaetur:ng enterprises. In forestry, most 

economies of size are achieved by spread~ng the 

inrtial fixed costs for capitaIization and transport of 

machinery over a larger output. Extensive 

speciai~zat~on of workers offers little advantage in 

forestry because &w operations are bry erlough to 

take advantage of thebe eccinomles. L3eeter 

utri:~at~cin oi technology krr~d mechanization does 

provrde some economies tji: srze on large forest 

tracts. 

Fiirestry l~terature dctcurnents that sunall tracts 

have hlghet- forest rnan;gernent and harvesting 

ctihts th,m i;tige tracts 'I'racth less than 3; to 75 

c~i-rt s rn sire hate slgnrficantlg greater at em-age 

costs, cspee~aily for n;i~ehanrzed oper~ttv~~b 

Ax, iir;iige iiosts hum he at least 25 percent higher 

for *i(l to 10 ,irr-e ti acts ktrnci, 50 pthrcent hlght r for 

ti,lr L-, heie,.~~, 10 to 20 ,icreks 11: $126 h>ie*raij liirger 

t:.,~i,tb i ;*I tli L 25 ACE+/ hiii i<iia~.ge ec9i)nourlit 

<id\ si:ad6sg* h 0; (iT ~il?,l:i tract:, ~~CSP thL~l? Sii ,I:? L;- i 

Avi" i,igtb iob,h rni .cctsc -;.III_BL~~J 6)~: ir;1ci;h i1~4o~r 5ib 

acres and are prohibitive on tracts below 10 to 20 

acres in size. 

Increasing mechanization and decreasing 

availability of manual labor will exacerbate 

problems with economics of size. Encouraging 

labor-intensive forestry, developing small-scale 

technology, harvesting larger volumes, and 

promoting tract aggregation have been suggested 

to alleviate problems of high average costs on small 

tracts. Of these, landowner cooperation and tract 

aggregation efforts are the most promising, 

provided the efficiency gains are not offset by 

increased administrative costs. 

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CUBBAGE, FRED. 

1983. Economics of forest tract size: Theory and 

literature, U.S. Dept. Agric. For. Serv. Gen. Tech. Rpt. 

SO-41, 21 p. South. For. Exp. Stn., New Orleans, La. 

This report reviews worldwide literature and theoretical 

bases on economics of forest tract size and examines means 

of reducing the diseconomies of small size. Economics of size 

will become more important as forestry becomes more 

mechanized. 

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