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Adaptation and the Option Value of Uncertain Environmental Resources

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  • Shogren, Jason F.
  • Crocker, Thomas D.

Abstract

Just as ecology has benefited from the economic theory of optimization, economics can benefit from the ecological theory of adaptation. We examine the impact of short-term, nongenetic adaptive self-protection on the values individuals attach to uncertain prospective environmental resources. We demonstrate that collective provision of reductions in supply uncertainty does not necessitate a positive option value, given that uncertainty is influenced by the individual's ability to adapt through self-protection. We conclude that the total value of reducing the supply uncertainty of a natural resource is reflected in both the individual's option price payments for collective provision and in his willingness-to-pay for adaptation through self-protection. By ignoring adaptive self-protection, traditional benefit-cost analysis has systematically underestimated the total value of environmental resources that are characterized by uncertain supplies.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Shogren, Jason F. & Crocker, Thomas D., 1991. "Adaptation and the Option Value of Uncertain Environmental Resources," Staff General Research Papers Archive 332, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:332
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    Cited by:

    1. Anna-Maria Aksan & William F. Vásquez, 2019. "Quality Perceptions and Water Treatment Behavior at the Household Level," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 5(03), pages 1-33, July.
    2. John Rolfe & Jill Windle, 2005. "Valuing options for reserve water in the Fitzroy Basin," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 49(1), pages 91-114, March.
    3. Mark D. Agee & Thomas D. Crocker, 2002. "On Techniques to Value the Impact of Environmental Hazards on Children's Health," NCEE Working Paper Series 200208, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Sep 2002.
    4. Rolfe, John & Windle, Jill, 2005. "Valuing options for reserve water in the Fitzroy Basin," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 49(1), pages 1-24.

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