Estimation of own and cross price elasticities of demand for wood-based products and associated substitutes in the German construction sector

The use of wood and wood-based products has positive effects on environmental considerations, e.g., climate change mitigation or the reduction of waste and other emissions. With regard to climate change mitigation, the benefit of wood-based products is based on storage effects and substitution effects. Especially in the German construction sector, large quantities of wood are used. Moreover, in this sector, products often remain in use over several decades. For these reasons the main objective of this paper is to provide information on factors influencing the choice of construction materials in the German construction sector for policy makers and market participants. The chosen method for estimating the interactions between prices of wood-based products, the prices of the associated substitutes, and the use of wood in the construction sector is the calculation of elasticities of demand. The analysis focuses on two product groups: (1) buildings as a whole and (2) different construction materials, such as bricks or sawnwood. In the field of residential and non-residential construction, the current state of knowledge for Germany is for the first time supported and partly quantified by mathematical methods. Non-significant results in the field of residential construction give an indication that the choice of building materials is based on non-quantifiable and statistically non-available factors. Elasticities for non-residential buildings in Germany are estimated for the first time. The estimated values are plausible in size and sign. It is evident that the tested products are substitutes. Hence, relevant information can be derived for market participants and related policies.