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Uncertainty and Real Options. Investment and Development of Fishing Resources (I)

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Author Info
Arantza Murillas () (Departamento de Fundamentos del Analisis Economico, Universidad del Pais Vasco, Spain)
Abstract

The valuation of development opportunity of a fishery is made particularly difficult by the high degree of uncertainty attaching to the price of the fishing resource. The net-present-value and other discounted cash-flows cannot properly capture the management s flexibility, thus they may understate its value. The motivation for using an option-based approach to capital budgeting arises from its potential to conceptualize and quantify the management s flexibility. Under this technique, management may have valuable flexibility to alter its operating strategy, options to shut down (and restart) fishery development. Real Options valuation has traditionally been applied in the area of natural resource developments different from fishing resources. The paper presents a general bioeconomic model for the value of a fishery. It suffices to determine not only the value of the fishery when open and closed, but also the optimal policy for opening, closing and for setting the harvest rate.

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Paper provided by Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística) in its series BILTOKI with number 200001.

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Date of creation: 11 Jan 2000
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Handle: RePEc:ehu:biltok:200001

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Postal: Dpto. de Econometría y Estadística, Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain
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Related research
Keywords: Fishing Resources; Real Options; Management's Flexibility.;

Find related papers by JEL classification:
Q22 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Fishery
G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

This paper has been announced in the following NEP Reports:

References listed on IDEAS
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