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On estimating the option value of preserving a wilderness area

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  • Margaret Forsyth

Abstract

In this paper option pricing theory is used to analyse whether or not to preserve a wilderness area. A numerical approach is demonstrated that can be applied to any generalized stochastic process. The impact of assuming that amenity value follows a logistic process, rather than geometric Brownian motion, is considered. The calculation of critical levels for amenity value necessary to justify preserving a wilderness area such as the Killarney Provincial Park in Ontario or the Headwaters Forest in California is demonstrated. The impact of changing the assumed growth and volatility of amenity value is also examined.

Suggested Citation

  • Margaret Forsyth, 2000. "On estimating the option value of preserving a wilderness area," Canadian Journal of Economics, Canadian Economics Association, vol. 33(2), pages 413-434, May.
  • Handle: RePEc:cje:issued:v:33:y:2000:i:2:p:413-434
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    Citations

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    Cited by:

    1. Insley, Margaret, 2002. "A Real Options Approach to the Valuation of a Forestry Investment," Journal of Environmental Economics and Management, Elsevier, vol. 44(3), pages 471-492, November.
    2. Erling Røed Larsen, 2002. "The Political Economy of Global Warming. From Data to Decisions," Discussion Papers 322, Statistics Norway, Research Department.
    3. Davis, Rebecca J. & Sims, Charles, 2016. "To Frack or Not to Frack: Option Value Analysis on the U.S. Natural Gas Market," 2016 Annual Meeting, July 31-August 2, 2016, Boston, Massachusetts 235642, Agricultural and Applied Economics Association.
    4. Isik, Murat & Yang, Wanhong, 2004. "An Analysis of the Effects of Uncertainty and Irreversibility on Farmer Participation in the Conservation Reserve Program," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 29(02), August.
    5. Delang, Claudio O., 2006. "Not just minor forest products: The economic rationale for the consumption of wild food plants by subsistence farmers," Ecological Economics, Elsevier, vol. 59(1), pages 64-73, August.
    6. Isik, Murat & Khanna, Madhu & Winter-Nelson, Alex, 2001. "Sequential Investment In Site-Specific Crop Management Under Output Price Uncertainty," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 26(01), July.
    7. Yang, Wanhong & Isik, Murat, 2004. "Integrating Farmer Decision Making to Target Land Retirement Programs," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 33(2), October.
    8. Thomas Eichner & John Tschirhart, 2007. "Efficient ecosystem services and naturalness in an ecological/economic model," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 37(4), pages 733-755, August.
    9. King, Steven & Fraser, Iain, 2013. "Divestment of the English Forestry Estate: An economically sound choice?," Ecological Economics, Elsevier, vol. 88(C), pages 25-31.
    10. Murat Isik, 2006. "Implications of alternative stochastic processes for investment in agricultural technologies," Applied Economics Letters, Taylor & Francis Journals, vol. 13(1), pages 21-27.
    11. Sims, Charles & Finnoff, David, 2012. "The role of spatial scale in the timing of uncertain environmental policy," Journal of Economic Dynamics and Control, Elsevier, vol. 36(3), pages 369-382.
    12. Guilherme Nunes Martins & Andrea Sales Soares de Azevedo Melo, 2007. "O Valor da Opção de Preservação do Parque dos Manguezais em Recife-PE: Uma Utilização do Método de Opções Reais," Economia, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics], vol. 8(4), pages 75-95.
    13. Yang, Wanhong & Isik, Murat, 2003. "Integrating Farmer Decision-Making to Target Land Retirement Programs," 2003 Annual meeting, July 27-30, Montreal, Canada 22062, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

    More about this item

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • Q26 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Recreational Aspects of Natural Resources

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