Uncertainty and Real Options. Investment and Development of Fishing Resources (I)
Abstract[EN] 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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Bibliographic InfoPaper provided by Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística) in its series BILTOKI with number 2000-01.
Date of creation: Jan 2000
Date of revision:
Postal: Dpto. de Econometría y Estadística, Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain
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:
- NEP-ALL-2000-01-24 (All new papers)
- NEP-CFN-2000-01-24 (Corporate Finance)
- NEP-ENV-2000-01-24 (Environmental Economics)
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