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Sammendrag

This report describes the model used in the project Modelling the Norwegian Forest Sector. The purpose of this project is to do consistent analyzes of how different changes in factors affecting the business environment of forestry and forest industries in Norway will effect the forest sector. The model used is developed by professor Markku Kallio at Helsinki School of Economics. The model is based on the same main principles as the model developed at the International Institute for Applied System Analysis in the 80s, IIASAs Global Trade Model, GTM. The model is named the Norwegian Trade Model, NTM. NTM is a regional partial equilibrium model with linear constraints (like production capacity limits and upper bounds on harvesting), and a non-linear object function (through non-linear timber supply functions). The model maximizes net social pay-off for all products and regions. Net social pay-off is calculated as the area under all demand functions, minus the sum of transportation costs resulting from trade with other regions, and minus productions costs in the forest industry including timber costs given by non-linear supply curves. This describes according to economic theory, a situation under perfect competition where all consumers and producers maximize their surplus. The model consists of four main parts: A model for timber supply, including the connection between harvesting level and timber costs, and between todays harvesting and future timber production and harvesting. A model for the forest industry that describes how timber is transformed to intermediate- and endproducts and how central factors such as capacity, locations and production costs change over time. A model for product demand that relates demand for forest products to factors such as price, volume, economic growth and exchange rates. A model for trade between regions that relates a fixed location of timber resources and forest industry to demand and supply of forest products. The model consists of 10 domestic regions and two regions for respectively export and import. 27 products are included in the model of which there are six roundwood assortments, 5 pulp grades, 2 board grades, 3 sawnwood products and 9 different paper and board products in addition to recycled paper and energy wood. The dynamics of the model is created through recursive programming where the equilibrium problem for the analyzing period is split into a number of equilibrium solutions, one for each time step. The equilibrium for the first time step t, gives together with changes in timber supply, production capacity, costs and demand, basis for the equilibrium solution in next time step t1. The model describes 5 time steps of 5 years each from year 1990 to year 2010, where the model estimates product prices, harvesting, production on plant and regional level and trade between regions in each time step. A model will always be a strong simplification of the real world. It is therefore important that results from the model are evaluated on the basis of assumptions within the model and the uncertainty of data used. It is our opinion that NTM is a appropriate model for analyzes of the Norwegian Forest Sector. Compared with other models we feel that NTM has the following advantages:The regional aspects is very well taken care of.The forest sector is well described as the forest sector is included at individual plant level. The optimization algorithms secure economic consistency in each scenario alternative. The non-linear timber supply equations used gives most likely a more realistic descriptions of the forest owners behaviour than linear supply equations.The algorithm applied is highly efficient, making possible solutions in short time. Every model has shortcomings towards the real world and it is important that the results from the model are evaluated in relation to these shortcomings. In NTM is it our opinion that the following factors are burdened with highest uncertainty:The linearization of the demand functions might give too large changes in demand when price change.The substitution between different timber assortments on both the supply and demand side is just described to a limited extent in the model.The model is not very user friendly.There will in general be significant uncertainty linked to the huge amount of data demanded by the model. The main purpose with the model is to quantify relative changes connected to certain assumptions and to clarify mechanisms. This purpose has to be emphasized when both results and model are evaluated. Used in this way, it is our opinion that NTM can give valuable insight in many aspects of the forest sector.