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The role of uncertainty and expectations in modeling (range)land use strategies: An application of dynamic optimization modeling with recursion

  • Domptail, Stéphanie
  • Nuppenau, Ernst-August
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    This paper presents a bio-economic optimization modeling approach for the simulation of land use decision making by farmers faced with climatic uncertainties. The approach is applied to the study of land use strategies on commercial ranches in Namibia. First, we compare two models differing in their structure: the first one is an inter-temporal optimization model (forward-looking with perfect foresight) while the second is recursive and it explicitly incorporates uncertainty in the decision making process. Second, we point out the structural advantage of the recursive optimization model in its ability to simulate how decision makers' perceptions on the occurrence of stochastic events alter land use strategies and their economic and ecological outcomes. Both models make use of a State-and-Transition conceptual framework to depict the bio-economic feedback. We found that the incorporation of rainfall uncertainty in decision making is crucial when modeling land use strategies in highly variable ecological-economic systems such as ranches in arid rain-fed areas. Where knowledge of rainfall distribution is inaccurate (due to lack of experience or climate change) both, farmers and rangelands, would be better off by precautiously expecting low rainfalls. Finally, our results show that minimizing herd size adjustment costs would support the establishment of sustainable land use strategies.

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    File URL: http://www.sciencedirect.com/science/article/B6VDY-50YFC01-2/2/d72372684ac772724f6e91cec0cf21ba
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    Article provided by Elsevier in its journal Ecological Economics.

    Volume (Year): 69 (2010)
    Issue (Month): 12 (October)
    Pages: 2475-2485

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    Handle: RePEc:eee:ecolec:v:69:y:2010:i:12:p:2475-2485
    Contact details of provider: Web page: http://www.elsevier.com/locate/ecolecon

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    1. Stefan Baumgärtner & Martin F. Quaas, 2007. "Agro-biodiversity as natural insurance and the development of financial insurance markets," Working Paper Series in Economics 61, University of Lüneburg, Institute of Economics.
    2. Perrings, Charles & Walker, Brian, 2004. "Conservation in the optimal use of rangelands," Ecological Economics, Elsevier, vol. 49(2), pages 119-128, June.
    3. Charles Perrings & David Stern, 2000. "Modelling Loss of Resilience in Agroecosystems: Rangelands in Botswana," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 16(2), pages 185-210, June.
    4. Finnoff, David & Shogren, Jason F. & Leung, Brian & Lodge, David, 2005. "The importance of bioeconomic feedback in invasive species management," Ecological Economics, Elsevier, vol. 52(3), pages 367-381, February.
    5. Marc Nerlove, 1981. "Expectations, Plans and Realizations: In Theory and Practice," Discussion Papers 511, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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    7. Janssen, Sander & van Ittersum, Martin K., 2007. "Assessing farm innovations and responses to policies: A review of bio-economic farm models," Agricultural Systems, Elsevier, vol. 94(3), pages 622-636, June.
    8. Michael T. Wallace & Joan E. Moss, 2002. "Farmer Decision-Making with Conflicting Goals: A Recursive Strategic Programming Analysis," Journal of Agricultural Economics, Wiley Blackwell, vol. 53(1), pages 82-100.
    9. Babiker, Mustafa & Gurgel, Angelo & Paltsev, Sergey & Reilly, John, 2009. "Forward-looking versus recursive-dynamic modeling in climate policy analysis: A comparison," Economic Modelling, Elsevier, vol. 26(6), pages 1341-1354, November.
    10. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
    11. Heidelbach, Olaf, 2007. "Efficiency of selected risk management instruments: An empirical analysis of risk reduction in Kazakhstani crop production," Studies on the Agricultural and Food Sector in Central and Eastern Europe, Leib­niz Institute of Agricultural Development in Central and Eastern Europe (IAMO), volume 40, number 92323, October.
    12. Higgins, Steven I. & Kantelhardt, Jochen & Scheiter, Simon & Boerner, Jan, 2007. "Sustainable management of extensively managed savanna rangelands," Ecological Economics, Elsevier, vol. 62(1), pages 102-114, April.
    13. Baumgärtner, Stefan & Quaas, Martin F., 2009. "Ecological-economic viability as a criterion of strong sustainability under uncertainty," Ecological Economics, Elsevier, vol. 68(7), pages 2008-2020, May.
    14. Janssen, Marco A. & Anderies, John M. & Walker, Brian H., 2004. "Robust strategies for managing rangelands with multiple stable attractors," Journal of Environmental Economics and Management, Elsevier, vol. 47(1), pages 140-162, January.
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