Species preservation and biodiversity value: a real options approach
AbstractWe evaluate biodiversity in a real options framework, when the resources in use are substitutable. We examine optimal conservation decisions given that a biodiversity loss is irreversible and that future use values are uncertain. While species substitutability is generally believed to reduce the value of diversity, we show that the flexibility associated with substitutability is a source of value. Marginal species value is decreasing in the number of species, but rising and convex in the value of the marginal species. As we show in the two-species homogenous model, increased volatility raises biodiversity value, and a positive correlation between species values both reduces the value of the pool of species and the value of biodiversity. The role played by the correlation between the value of a species and the value of other species, is reminiscent of the Beta of a financial asset. Just like an asset with a negative Beta derives additional value by providing insurance against fluctuations in the market portfolio, a species whose value tends to move in the opposite direction as the species in use derives additional value from its higher probability to be available for substitution if the value of the species in use diminishes. Nous Ã©tudions la biodiversitÃ© dans un cadre d'options rÃ©elles oÃ¹ les ressources sont substituables. Comment optimiser les dÃ©cisions de conservation quand toute perte de biodiversitÃ© est irrÃ©versible et les valeurs futures incertaines? Nous montrons que la substituabilitÃ©, normalement considÃ©rÃ©e comme rÃ©duisant la valeur d'une espÃ¨ce, est en fait source de valeur. La valeur marginale est dÃ©croissante dans Ie nombre d'espÃ¨ces mais croissante et convexe dans la valeur de l'espÃ¨ce marginale. Pour un modÃ¨le homogÃ¨ne Ã deux espÃ¨ces, nous montrons Ã©galement que la volatilitÃ© est un facteur d'augmentation de la valeur de la biodiversitÃ©, tandis que la corrÃ©lation rÃ©duit tant la valeur totale que la valeur marginale des espÃ¨ces.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Environmental Economics and Management.
Volume (Year): 48 (2004)
Issue (Month): 2 (September)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/622870
Other versions of this item:
- Ilhem Kassar & Pierre Lasserre, 2002. "Species Preservation and Biodiversity Value: A Real Options Approach," Cahiers de recherche du DÃ©partement des sciences Ã©conomiques, UQAM 20-18, Université du Québec à Montréal, Département des sciences économiques.
- Ilhem Kassar & Pierre Lasserre, 2002. "Species Preservation and Biodiversity Value: A Real Options Approach," CIRANO Working Papers 2002s-82, CIRANO.
- D46 - Microeconomics - - Market Structure and Pricing - - - Value Theory
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- D99 - Microeconomics - - Intertemporal Choice and Growth - - - Other
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
- Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Henry, Claude, 1974. "Investment Decisions Under Uncertainty: The "Irreversibility Effect."," American Economic Review, American Economic Association, vol. 64(6), pages 1006-12, December.
- Martin L. Weitzman, 1998. "The Noah's Ark Problem," Econometrica, Econometric Society, vol. 66(6), pages 1279-1298, November.
- Swanson, Timothy M, 1994. "The Economics of Extinction Revisited and Revised: A Generalised Framework for the Analysis of the Problems of Endangered Species and Biodiversity Losses," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 800-821, Supplemen.
- Mason, Charles F., 2001. "Nonrenewable Resources with Switching Costs," Journal of Environmental Economics and Management, Elsevier, vol. 42(1), pages 65-81, July.
- Robert S. Pindyck, 1993.
"Investments of Uncertain Cost,"
NBER Working Papers
4175, National Bureau of Economic Research, Inc.
- Simpson, R David & Sedjo, Roger A & Reid, John W, 1996. "Valuing Biodiversity for Use in Pharmaceutical Research," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 163-85, February.
- Amy Craft & R. Simpson, 2001. "The Value of Biodiversity in Pharmaceutical Research with Differentiated Products," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 18(1), pages 1-17, January.
- Gordon C. Rausser & Arthur A. Small, 2000.
"Valuing Research Leads: Bioprospecting and the Conservation of Genetic Resources,"
Journal of Political Economy,
University of Chicago Press, vol. 108(1), pages 173-206, February.
- Rausser, Gordon C. & Small, Arthur A., 2000. "Valuing Research Leads: Bioprospecting and the Conservation of Genetic Resources," Berkeley Olin Program in Law & Economics, Working Paper Series qt4t56m5b8, Berkeley Olin Program in Law & Economics.
- Wesseler, Justus, 2000. "Temporal Uncertainty And Irreversibility: A Theoretical Framework For The Decision To Approve The Release Of Transgenic Crops," Proceedings:Transitions in Agbiotech: Economics of Strategy and Policy, June 24-25, 1999, Washington, D.C. 26010, Regional Research Project NE-165 Private Strategies, Public Policies, and Food System Performance.
- Oliver Fromm, 2000. "Ecological Structure and Functions of Biodiversity as Elements of Its Total Economic Value," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 16(3), pages 303-328, July.
- Sedjo, Roger & Simpson, R. David, 1996. "Valuation of Biodiversity for Use in New Product Research in a Model of Sequential Search," Discussion Papers dp-96-27, Resources For the Future.
- Boyle, Phelim P., 1988. "A Lattice Framework for Option Pricing with Two State Variables," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 23(01), pages 1-12, March.
- Triantis, Alexander J & Hodder, James E, 1990. " Valuing Flexibility as a Complex Option," Journal of Finance, American Finance Association, vol. 45(2), pages 549-65, June.
- Fisher, Anthony C. & Hanemann, W. Michael, 1987. "Quasi-option value: Some misconceptions dispelled," Journal of Environmental Economics and Management, Elsevier, vol. 14(2), pages 183-190, June.
- McDonald, Robert L & Siegel, Daniel R, 1985. "Investment and the Valuation of Firms When There Is an Option to Shut Down," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(2), pages 331-49, June.
- Weitzman, Martin L, 1993. "What to Preserve? An Application of Diversity Theory to Crane Conservation?," The Quarterly Journal of Economics, MIT Press, vol. 108(1), pages 157-83, February.
- Arrow, Kenneth J & Fisher, Anthony C, 1974. "Environmental Preservation, Uncertainty, and Irreversibility," The Quarterly Journal of Economics, MIT Press, vol. 88(2), pages 312-19, May.
- Trigeorgis, Lenos, 1993. "The Nature of Option Interactions and the Valuation of Investments with Multiple Real Options," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(01), pages 1-20, March.
- Timo Goeschl & Timothy Swanson, 2002. "The Social Value of Biodiversity for R&D," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 22(4), pages 477-504, August.
- Brennan, Michael J & Schwartz, Eduardo S, 1985. "Evaluating Natural Resource Investments," The Journal of Business, University of Chicago Press, vol. 58(2), pages 135-57, April.
- Sedjo, Roger & Simpson, R. David, 1996. "Investments in Biodiversity Prospecting and Incentives for Conservation," Discussion Papers dp-96-14, Resources For the Future.
- Cox, John C. & Ross, Stephen A. & Rubinstein, Mark, 1979. "Option pricing: A simplified approach," Journal of Financial Economics, Elsevier, vol. 7(3), pages 229-263, September.
- Lasserre, Pierre & Moatti, Jean-Paul & Soubeyran, Antoine, 2006.
"Early initiation of highly active antiretroviral therapies for AIDS: Dynamic choice with endogenous and exogenous learning,"
Journal of Health Economics,
Elsevier, vol. 25(3), pages 579-598, May.
- Pierre Lasserre & Jean-Paul Moatti & Antoine Soubeyran, 2005. "Early Initiation of Highly Active Antiretroviral Therapies for Aids: Dynamic choice with Endogenous and Exogenous Learning," CIRANO Working Papers 2005s-34, CIRANO.
- Leroux, Anke D. & Martin, Vance L. & Goeschl, Timo, 2009. "Optimal conservation, extinction debt, and the augmented quasi-option value," Journal of Environmental Economics and Management, Elsevier, vol. 58(1), pages 43-57, July.
- Song, Feng & Zhao, Jinhua & Swinton, Scott M., 2009.
"Switching to Perennial Energy Crops under Uncertainty and Costly Reversibility,"
56195, Michigan State University, Department of Agricultural, Food, and Resource Economics.
- Feng Song & Jinhua Zhao & Scott M. Swinton, 2011. "Switching to Perennial Energy Crops Under Uncertainty and Costly Reversibility," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 93(3), pages 764-779.
- Luca Corato & Michele Moretto & Sergio Vergalli, 2013.
"Land conversion pace under uncertainty and irreversibility: too fast or too slow?,"
Journal of Economics,
Springer, vol. 110(1), pages 45-82, September.
- Luca Di Corato & Michele Moretto & Sergio Vergalli, 2011. "Land Conversion Pace under Uncertainty and Irreversibility: too fast or too slow?," Working Papers 2011.84, Fondazione Eni Enrico Mattei.
- de, Vries Frans & Ellis, Ciaran & Goulson, Dave & Hanley, Nicholas & Kleczkowski, Adam, 2013. "Ecological-economic modelling of interactions between wild and commercial bees and pesticide use," Stirling Economics Discussion Papers 2013-10, University of Stirling, Division of Economics.
- Marcoul, Philippe & Weninger, Quinn, 2008.
"Search and active learning with correlated information: Empirical evidence from mid-Atlantic clam fishermen,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 32(6), pages 1921-1948, June.
- Marcoul, Philippe & Weninger, Quinn, 2008. "Search and Active Learning with Correlated Information: Empirical Evidence from Mid-Atlantic Clam Fishermen," Staff General Research Papers 11601, Iowa State University, Department of Economics.
- Eppink, Florian V. & van den Bergh, Jeroen C.J.M., 2007. "Ecological theories and indicators in economic models of biodiversity loss and conservation: A critical review," Ecological Economics, Elsevier, vol. 61(2-3), pages 284-293, March.
- Costello, Christopher & Ward, Michael, 2006.
"Search, bioprospecting and biodiversity conservation,"
Journal of Environmental Economics and Management,
Elsevier, vol. 52(3), pages 615-626, November.
- Costello, Christopher & Ward, Michael B., 2007. "Search, bioprospecting, and biodiversity conservation," MPRA Paper 26527, University Library of Munich, Germany.
- Trommetter, Michel, 2005.
"Biodiversity and international stakes: A question of access,"
Elsevier, vol. 53(4), pages 573-583, June.
- Trommetter, M., 2004. "Biodiversity and international stakes : a question of access," Working Papers 200418, Grenoble Applied Economics Laboratory (GAEL).
- Béné, C. & Doyen, L., 2008. "Contribution values of biodiversity to ecosystem performances: A viability perspective," Ecological Economics, Elsevier, vol. 68(1-2), pages 14-23, December.
- Sarr, Mare & Goeschl, Timo & Swanson, Tim, 2008. "The value of conserving genetic resources for R&D: A survey," Ecological Economics, Elsevier, vol. 67(2), pages 184-193, September.
- Gatti, J.R.J. & Goeschl, T. & Groom, B. & Timothy Swanson, 2004.
"The Biodiversity Bargaining Problem,"
Cambridge Working Papers in Economics
0447, Faculty of Economics, University of Cambridge.
- Joubert, J.W. & Luhandjula, M.K. & Ncube, O. & le Roux, G. & de Wet, F., 2007. "An optimization model for the management of a South African game ranch," Agricultural Systems, Elsevier, vol. 92(1-3), pages 223-239, January.
- Erwin, Patrick M. & López-Legentil, Susanna & Schuhmann, Peter W., 2010. "The pharmaceutical value of marine biodiversity for anti-cancer drug discovery," Ecological Economics, Elsevier, vol. 70(2), pages 445-451, December.
- 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.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wendy Shamier).
If references are entirely missing, you can add them using this form.