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Urban Containment: An Effective Tool for Environmental Protection?

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  • Maria A. Cunha-e-Sa
  • Sofia F. Franco
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    Abstract

    This paper examines the effectiveness of urban containment policies to protect forestland from residential conversion and to increase the provision of forest public goods in the presence of irreversible investments and policy uncertainty. We develop a model of a single landowner that allows for switching between competing land uses (forestry and residential use) at some point in the future. Our results show that urban containment policies can protect (even if temporarily) forestland from being developed but must be supplemented with policies that influence the length and number of harvesting cycles if the goal is to increase nontimber benefits. The threat of a development prohibition creates incentives for preemptive timber harvesting and land conversion. In particular, threatened regulation creates an incentive to shorten rotation cycles to avoid costly land-use restrictions. However, it has an ambiguous effect on forestland conversion as the number of rotation cycles can also be adjusted to maximize the expected returns to land. Finally, in the presence of irreversibility, forestland conversion decisions should be done using real option theory rather than net present value analysis. JEL codes:Q23, R11, R14

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    File URL: http://fesrvsd.fe.unl.pt/WPFEUNL/WP2012/Wp563.pdf
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    Bibliographic Info

    Paper provided by Universidade Nova de Lisboa, Faculdade de Economia in its series FEUNL Working Paper Series with number wp563.

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    Length: 43 pages
    Date of creation: 2012
    Date of revision:
    Handle: RePEc:unl:unlfep:wp563

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    Keywords: urban development; forest externalities; rotation cycles; urban conversion; UGB; Greenbelt;

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    References

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    1. Englin, Jeffrey E. & Klan, Mark S., 1990. "Optimal taxation: Timber and externalities," Journal of Environmental Economics and Management, Elsevier, vol. 18(3), pages 263-275, May.
    2. Swallow, Stephen K. & Parks, Peter J. & Wear, David N., 1990. "Policy-relevant nonconvexities in the production of multiple forest benefits," Journal of Environmental Economics and Management, Elsevier, vol. 19(3), pages 264-280, November.
    3. Arnott, Richard J., 1980. "A simple urban growth model with durable housing," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 10(1), pages 53-76, March.
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    9. Tyrvainen, Liisa & Miettinen, Antti, 2000. "Property Prices and Urban Forest Amenities," Journal of Environmental Economics and Management, Elsevier, vol. 39(2), pages 205-223, March.
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    13. Jan K. Brueckner, 1990. "Growth Controls and Land Values in an Open City," Land Economics, University of Wisconsin Press, vol. 66(3), pages 237-248.
    14. Reed, William J., 1993. "The decision to conserve or harvest old-growth forest," Ecological Economics, Elsevier, Elsevier, vol. 8(1), pages 45-69, August.
    15. Capozza Dennis R. & Sick Gordon A., 1994. "The Risk Structure of Land Markets," Journal of Urban Economics, Elsevier, vol. 35(3), pages 297-319, May.
    16. Geoffrey Turnbull, 2005. "The Investment Incentive Effects of Land Use Regulations," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 31(4), pages 357-395, December.
    17. Strang, William J, 1983. "On the Optimal Forest Harvesting Decision," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 21(4), pages 576-83, October.
    18. Leggett, Christopher G. & Bockstael, Nancy E., 2000. "Evidence of the Effects of Water Quality on Residential Land Prices," Journal of Environmental Economics and Management, Elsevier, vol. 39(2), pages 121-144, March.
    19. Geoffrey K. Turnbull, 2002. "Land Development under the Threat of Taking," Southern Economic Journal, Southern Economic Association, Southern Economic Association, vol. 69(2), pages 290-308, October.
    20. Conrad, Jon M., 1997. "On the option value of old-growth forest," Ecological Economics, Elsevier, Elsevier, vol. 22(2), pages 97-102, August.
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