The Value of Flexibility: Preservation, Remediation, or Development for Ginostra?
We are concerned with land allocation andinvestment decisions when dealing withpartially degraded areas that might be (1)remediated and returned to a more natural state;or (2) irreversibly developed. This type ofproblem seems particularly relevant in Europewhere the issue of wilderness conservation isof less concern than the remediation oflandscapes which have been altered by previouseconomic activities. Traditional expectedpresent value analysis will fail to capture thevalue of investments that might be undertakensequentially or when certain investments areirreversible. We show how to determine, withina discrete-time, stochastic model, the optimaladaptive development strategy and how tocalculate the option value of flexibility. Thetheoretical model is then applied to Ginostra,a town on Stromboli, an island off the southerncoast of Italy. Copyright Kluwer Academic Publishers 2004
Volume (Year): 29 (2004)
Issue (Month): 2 (October)
|Contact details of provider:|| Web page: http://www.springerlink.com/link.asp?id=100263|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kenneth J. Arrow & Anthony C. Fisher, 1974. "Environmental Preservation, Uncertainty, and Irreversibility," The Quarterly Journal of Economics, Oxford University Press, vol. 88(2), pages 312-319.
- Fisher, Anthony C., 2000. "Investment under uncertainty and option value in environmental economics," Resource and Energy Economics, Elsevier, vol. 22(3), pages 197-204, July.
- Merton, Robert C, 1998.
"Applications of Option-Pricing Theory: Twenty-Five Years Later,"
American Economic Review,
American Economic Association, vol. 88(3), pages 323-49, June.
- Merton, Robert C., 1997. "Applications of Option-Pricing Theory: Twenty-Five Years Later," Nobel Prize in Economics documents 1997-1, Nobel Prize Committee.
- Andrew W. Lo, 1986.
"Maximum Likelihood Estimation of Generalized Ito Processes with Discretely Sampled Data,"
NBER Technical Working Papers
0059, National Bureau of Economic Research, Inc.
- Lo, Andrew W., 1988. "Maximum Likelihood Estimation of Generalized Itô Processes with Discretely Sampled Data," Econometric Theory, Cambridge University Press, vol. 4(02), pages 231-247, August.
- Andrew W. Lo, . "Maximum Likelihood Estimation of Generalized Ito Processes with Discretely Sampled Data," Rodney L. White Center for Financial Research Working Papers 15-86, Wharton School Rodney L. White Center for Financial Research.
- Hanemann, W. Michael, 1989. "Information and the concept of option value," Journal of Environmental Economics and Management, Elsevier, vol. 16(1), pages 23-37, January.
- Jon M. Conrad, 1980. "Quasi-Option Value and the Expected Value of Information," The Quarterly Journal of Economics, Oxford University Press, vol. 94(4), pages 813-820.
- Henry, Claude, 1974. "Investment Decisions Under Uncertainty: The "Irreversibility Effect."," American Economic Review, American Economic Association, vol. 64(6), pages 1006-12, December.
When requesting a correction, please mention this item's handle: RePEc:kap:enreec:v:29:y:2004:i:2:p:219-229. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.