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A Theoretical Modeling Framework to Support Investment Decisions in Green and Grey Infrastructure under Risk and Uncertainty

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  • Zehua Pan
  • Roy Brouwer

Abstract

Green infrastructure for source water protection in the form of forest protection and afforestation is gaining interest worldwide. It is considered more sustainable in the long-term than traditional engineering-based approaches. This paper presents a theoretical model to support investment decisions in green and grey infrastructure to deliver safe drinking water. We first develop a static optimal control model accounting for the uncertainties surrounding green infrastructure. This model is then extended to factor in key characteristics surrounding investment decisions aimed at optimizing the stock of green and grey infrastructure. We first include dynamic forest growth, followed by the risk of wildfires and finally the potential offsetting effect of carbon sequestration on long-term climate change and the reduced risk of wildfires. We provide a numerical example to analyze the performance of the different model specifications, interpret their outcomes and draw conclusions to guide future investment decisions in green and grey infrastructure.

Suggested Citation

  • Zehua Pan & Roy Brouwer, 2021. "A Theoretical Modeling Framework to Support Investment Decisions in Green and Grey Infrastructure under Risk and Uncertainty," Journal of Forest Economics, now publishers, vol. 36(4), pages 407-440, October.
    • Handle: RePEc:now:jnljfe:112.00000536
    DOI: 10.1561/112.00000536
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    Cited by:

    1. Brouwer, Roy, 2023. "Reconciling Theory and Practice in Higher Education Water Economics Courses," Applied Economics Teaching Resources (AETR), Agricultural and Applied Economics Association, vol. 5(2), February.
    2. Gu Jinjin & Lyu Xiaoqian & Fang Buyun & Hui Qiang & Cao Yuan, 2023. "Study on Planning and Design of Blue-Green-Gray Transformation of Lakeside Cities to Deal with the Complex Urban Waterlogging Caused by Extreme Rainstorm," Land, MDPI, vol. 12(2), pages 1-16, January.
    3. Pan, Zehua & Brouwer, Roy & Emelko, Monica B., 2022. "Correlating forested green infrastructure to water rates and adverse water quality incidents: A spatial instrumental variable regression model," Forest Policy and Economics, Elsevier, vol. 140(C).

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