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A Real Option Approach to the Protection of a Habitat Dependent Endangered Species

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  • Skander Ben Abdallah
  • Pierre Lasserre

Abstract

We use a real option approach to determine optimally when a social planner has to stop or resume logging in situations where an endangered species relies on forest habitat for its survival, and that habitat evolves stochastically. The model incorporates economic, ecological and social features, and is calibrated to generate an optimal forest management rule that balances the benefits from commercial forest exploitation with the risks of extinction facing the endangered species. For the reasonable parameters used in our application to the Rangifer tarandus caribou, an endangered species in Central Labrador (Canada), the policy of banning logging temporarily is quite attractive as it does not require long banning periods while it drastically reduces the extinction risk and increases forest value. Nous utilisons la méthode des options réelles pour déterminer quand un planificateur social doit interrompre ou reprendre l'exploitation d'une forêt, lorsque celle-ci constitue l'habitat stochastique d'une espèce menacée d'extinction. Le modèle présente des aspects économiques, écologiques et sociaux; il établit une règle optimale de gestion forestière qui fait l'arbitrage entre les bénéfices commerciaux de l'exploitation forestière et les risques d'extinction de l'espèce. Pour des paramètres correspondant au cas du Rangifer tarandus caribou, une espèce du centre du Labrador (Canada) menacée d'extinction, la politique optimale d'interruption et reprise de l'exploitation forestière est attractive; elle n'exige pas de longs arrêts dans l'exploitation, alors qu'elle réduit significativement le risque d'extinction et augmente la valeur de la forêt.

Suggested Citation

  • Skander Ben Abdallah & Pierre Lasserre, 2008. "A Real Option Approach to the Protection of a Habitat Dependent Endangered Species," CIRANO Working Papers 2008s-30, CIRANO.
  • Handle: RePEc:cir:cirwor:2008s-30
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    File URL: http://www.cirano.qc.ca/files/publications/2008s-30.pdf
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    References listed on IDEAS

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    1. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-638, June.
    2. Pindyck, Robert S., 2000. "Irreversibilities and the timing of environmental policy," Resource and Energy Economics, Elsevier, vol. 22(3), pages 233-259, July.
    3. Kassar, Ilhem & Lasserre, Pierre, 2004. "Species preservation and biodiversity value: a real options approach," Journal of Environmental Economics and Management, Elsevier, vol. 48(2), pages 857-879, September.
    4. 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.
    5. Saphores, Jean-Daniel, 2003. "Harvesting a renewable resource under uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 28(3), pages 509-529, December.
    6. Conrad, Jon M., 2000. "Wilderness: options to preserve, extract, or develop," Resource and Energy Economics, Elsevier, vol. 22(3), pages 205-219, July.
    7. Saphores, Jean-Daniel M. & Shogren, Jason F., 2005. "Managing exotic pests under uncertainty: optimal control actions and bioeconomic investigations," Ecological Economics, Elsevier, vol. 52(3), pages 327-339, February.
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    Cited by:

    1. repec:eee:eneeco:v:67:y:2017:i:c:p:1-16 is not listed on IDEAS
    2. repec:eee:ecolec:v:144:y:2018:i:c:p:59-64 is not listed on IDEAS

    More about this item

    Keywords

    real options; biodiversity; endangered species; extinction; forestry.; options réelles; biodiversité; extinction; espèces menacées; aménagement forestier.;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • Q23 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Forestry
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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