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How real options and ecological resilience thinking can assist in environmental risk management

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  • Stuart M. Whitten
  • Greg Hertzler
  • Sebastian Strunz

Abstract

In this paper, we describe how real option techniques and resilience thinking can be integrated to better understand and inform decision-making around environmental risks within complex systems. Resilience thinking offers a promising framework for framing environmental risks posed through the non-linear responses of complex systems to natural and human-induced disturbance pressures. Real options techniques offer the potential to directly model such systems including consideration of the prospect that the passage of time opens new options while closing others. The implications (cost) of risk can be described by option prices that describe the net present values generated by alternative regimes in the resilience construct, and the shadow prices of particular attributes of resilience such as the speed of return from a shock and the distance or time to transition. Examples are provided which illustrate the potential for integrated resilience and real options approaches to contribute to understanding and managing environmental risk.

Suggested Citation

  • Stuart M. Whitten & Greg Hertzler & Sebastian Strunz, 2012. "How real options and ecological resilience thinking can assist in environmental risk management," Journal of Risk Research, Taylor & Francis Journals, vol. 15(3), pages 331-346, March.
    • Handle: RePEc:taf:jriskr:v:15:y:2012:i:3:p:331-346
    DOI: 10.1080/13669877.2011.634525
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    Cited by:

    1. Yi-Chang Chiang & Tzen-Ying Ling, 2017. "Exploring Flood Resilience Thinking in the Retail Sector under Climate Change: A Case Study of an Estuarine Region of Taipei City," Sustainability, MDPI, vol. 9(9), pages 1-21, September.
    2. Lorren K. Haywood & Greg G. Forsyth & Willem J. Lange & Douglas H. Trotter, 2017. "Contextualising risk within enterprise risk management through the application of systems thinking," Environment Systems and Decisions, Springer, vol. 37(2), pages 230-240, June.
    3. Seth D. Baum, 2015. "Risk and resilience for unknown, unquantifiable, systemic, and unlikely/catastrophic threats," Environment Systems and Decisions, Springer, vol. 35(2), pages 229-236, June.
    4. Svajone Bekesiene & Rosita Kanapeckaitė & Rasa Smaliukienė & Olga Navickienė & Ieva Meidutė-Kavaliauskienė & Ramutė Vaičaitienė, 2022. "Sustainable Reservists’ Services: The Effect of Resilience on the Intention to Remain in the Active Military Reserve Using a Parallel Mediating Model," Sustainability, MDPI, vol. 14(19), pages 1-19, September.
    5. TORRESI Fabrizio & PITRĖNAITĖ-ŽILĖNIENĖ Birute, 2014. "Integrated Approach to a Resilient City: Associating Social, Environmental and Infrastructure Resilience in its Whole," European Journal of Interdisciplinary Studies, Bucharest Economic Academy, issue 02, June.

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