Irreversibility and Restoration in Natural Resource Development
AbstractThe authors extend real option theory to evaluate natural resource development projects that may bring negative net benefits and require costly restoration. Based on a new concept, irreversibility cost, they show that the degree of irreversibility becomes an endogenous choice, rather than an exogenously given economic constraint. Fixed costs of restoration have continuous impacts, over and above the widely recognized fixed effects, on development and restoration levels (and the marginal q). The project's value may not necessarily be convex in the underlying random variable and discounting may, in fact, encourage the pattern of developing now and restoring later. Copyright 1999 by Royal Economic Society.
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Bibliographic InfoArticle provided by Oxford University Press in its journal Oxford Economic Papers.
Volume (Year): 51 (1999)
Issue (Month): 3 (July)
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Other versions of this item:
- Zhao, Jinhua & Zilberman, David, 1999. "Irreversibility and Restoration in Natural Resource Development," Staff General Research Papers 1641, Iowa State University, Department of 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.:
- 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.
- Toman, Michael & Kolstad, Charles, 2000.
"The Economics of Climate Policy,"
dp-00-40, Resources For the Future.
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