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Land Conversion Pace under Uncertainty and Irreversibility: too fast or too slow?

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Author Info

  • Luca Di Corato

    (Department of Economics, SLU)

  • Michele Moretto

    (Department of Economics, University of Padova, Fondazione Eni Enrico Mattei and Centro Studi Levi-Cases)

  • Sergio Vergalli

    (Department of Economics, University of Brescia, and Fondazione Eni Enrico Mattei)

Abstract

In this paper stochastic dynamic programming is used to investigate land conversion decisions taken by a multitude of landholders under uncertainty about the value of environmental services and irreversible development. We study land conversion under competition on the market for agricultural products when voluntary and mandatory measures are combined by the Government to induce adequate participation in a conservation plan. We study the impact of uncertainty on the optimal conversion policy and discuss conversion dynamics under different policy scenarios on the basis of the relative long-run expected rate of deforestation. Interestingly, we show that uncertainty, even if it induces conversion postponement in the short-run, increases the average rate of deforestation and reduces expected time for total conversion in the long run. Finally, we illustrate our findings through some numerical simulations.

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Bibliographic Info

Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2011.84.

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Date of creation: Nov 2011
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Handle: RePEc:fem:femwpa:2011.84

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Keywords: Optimal Stopping; Deforestation; Payments for Environmental Services; Natural Resources Management;

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Citations

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Cited by:
  1. 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.
  2. Di Corato, Luca & Gazheli, Ardjan & Lagerkvist, Carl-Johan, 2013. "Investing in energy forestry under uncertainty," Forest Policy and Economics, Elsevier, vol. 34(C), pages 56-64.
  3. Giacomo Corneo & Sergio Vergalli, 2013. "Editorial: The economics of irreversible choices," Journal of Economics, Springer, vol. 110(1), pages 1-3, September.

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