Production and cost in the US paper and paperboard industry.

The US paper and paperboard industry has experienced significant structural changes over the past 25 years, including reductions in the number of mills, lower rates of capacity growth, employment cutbacks and a loss of market share to foreign competitors. These structural shifts portray an industry that increasingly has difficulty adapting to a more competitive global environment. Based on aggregate data from 1965 to 1996, this article estimates a short-run translog (TL) cost function for the industry. The estimated model fits the data well and all sample points satisfy monotonicity and concavity conditions at all points. Among the findings, the industry operates at slightly increasing returns to capital utilization and labour and energy are Allen-Uzawa complements but Morishima substitutes in production. Technological progress generated 0.02% reduction in annual operating costs and consistent with an ailing US industry, estimated marginal costs approximated average operating costs until 1982 after which marginal costs significantly diverged from average operating costs. [ABSTRACT FROM AUTHOR]