The Use and Performance of Sealed Bid versus Oral Timber Auctions by State Forestry Agencies: A Minnesota Case Study

Abstract

State governments are responsible for the stewardship and management of more than 28 million ha of forest land in the United States. This study presents the findings of an in-depth examination of the characteristics and performance of sealed bid and oral auctions using records from more than a thousand tracts offered for sale by the Minnesota Department of Natural Resources, which administers one of the nation’s most robust state timber sale programs. The study found that although tracts offered for sale through oral and sealed bid auctions sold at the same rate and are undifferentiated with respect to nearly all characteristics, sealed bid tracts generated significantly higher winning prices and additional revenue per hectare than tracts sold using oral auctions. Logging businesses were more likely to win sealed auctions than oral auctions, and their portfolio of purchased tracts contained a higher proportion acquired through sealed bid auctions than the portfolio of sealed bid tracts purchased by mills. The study adds to the limited body of literature on public agency timber auctions and is the first to provide a detailed analysis of the auction methods used by a state forest management agency. Study Implications: Public agencies use sealed bid and oral auctions to sell timber rights. This study of the nation’s largest state timber sale program found that the auction method used affects winning bid prices, the likelihood certain categories of bidders will win the auction, the allocation of timber to mills and logging businesses, and revenue generated for each hectare of timber sold. State timber sale program administrators may be able to use these findings to better understand how the choice of auction method affects the financial performance of their timber sale program as well as the allocation of timber among the major types of bidders.