Rent Capture Analysis of Ontario’s Stumpage System Using an Enhanced Parity Bounds Model

We develop and use an enhanced parity bounds model (EPBM) to examine the discrepancy between the stumpage price administratively determined under Ontario’s current stumpage pricing system and the market value of stumpage covering from June, 1995 to January, 2007. The results show that in the short run, the stumpage prices were below or above the market values. However, in the long run, the underpayment and overpayment will even out each other. The results imply that Ontario’s stumpage pricing system has the ability to capture the full economic rents in the long-run, and the results also have other policy implications.