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On estimating the option value of preserving a wilderness area

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  • Margaret Forsyth

Abstract

In this paper option pricing theory is used to analyse whether or not to preserve a wilderness area. A numerical approach is demonstrated that can be applied to any generalized stochastic process. The impact of assuming that amenity value follows a logistic process, rather than geometric Brownian motion, is considered. The calculation of critical levels for amenity value necessary to justify preserving a wilderness area such as the Killarney Provincial Park in Ontario or the Headwaters Forest in California is demonstrated. The impact of changing the assumed growth and volatility of amenity value is also examined.

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Bibliographic Info

Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 33 (2000)
Issue (Month): 2 (May)
Pages: 413-434

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Handle: RePEc:cje:issued:v:33:y:2000:i:2:p:413-434

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Cited by:
  1. Sims, Charles & Finnoff, David, 2012. "The role of spatial scale in the timing of uncertain environmental policy," Journal of Economic Dynamics and Control, Elsevier, vol. 36(3), pages 369-382.
  2. Erling Røed Larsen, 2002. "The Political Economy of Global Warming. From Data to Decisions," Discussion Papers 322, Research Department of Statistics Norway.
  3. Yang, Wanhong & Isik, Murat, 2004. "Integrating Farmer Decision Making to Target Land Retirement Programs," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 33(2), October.
  4. Delang, Claudio O., 2006. "Not just minor forest products: The economic rationale for the consumption of wild food plants by subsistence farmers," Ecological Economics, Elsevier, vol. 59(1), pages 64-73, August.
  5. Isik, Murat & Khanna, Madhu & Winter-Nelson, Alex, 2001. "Sequential Investment In Site-Specific Crop Management Under Output Price Uncertainty," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 26(01), July.
  6. Thomas Eichner & John Tschirhart, 2007. "Efficient ecosystem services and naturalness in an ecological/economic model," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 37(4), pages 733-755, August.
  7. Isik, Murat & Yang, Wanhong, 2004. "An Analysis of the Effects of Uncertainty and Irreversibility on Farmer Participation in the Conservation Reserve Program," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 29(02), August.
  8. Insley, Margaret, 2002. "A Real Options Approach to the Valuation of a Forestry Investment," Journal of Environmental Economics and Management, Elsevier, vol. 44(3), pages 471-492, November.
  9. Yang, Wanhong & Isik, Murat, 2003. "Integrating Farmer Decision-Making to Target Land Retirement Programs," 2003 Annual meeting, July 27-30, Montreal, Canada 22062, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  10. King, Steven & Fraser, Iain, 2013. "Divestment of the English Forestry Estate: An economically sound choice?," Ecological Economics, Elsevier, vol. 88(C), pages 25-31.
  11. Murat Isik, 2006. "Implications of alternative stochastic processes for investment in agricultural technologies," Applied Economics Letters, Taylor & Francis Journals, vol. 13(1), pages 21-27.
  12. Guilherme Nunes Martins & Andrea Sales Soares de Azevedo Melo, 2007. "O Valor da Opção de Preservação do Parque dos Manguezais em Recife-PE: Uma Utilização do Método de Opções Reais," Economia, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics], vol. 8(4), pages 75_95.

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