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Land Conversion Pace under Uncertainty and Irreversibility: too fast or too slow?

  • Luca Di Corato

    (Department of Economics, SLU)

  • Michele Moretto

    (Department of Economics, University of Padova, Fondazione Eni Enrico Mattei and Centro Studi Levi-Cases)

  • Sergio Vergalli

    (Department of Economics, University of Brescia, and Fondazione Eni Enrico Mattei)

In this paper stochastic dynamic programming is used to investigate land conversion decisions taken by a multitude of landholders under uncertainty about the value of environmental services and irreversible development. We study land conversion under competition on the market for agricultural products when voluntary and mandatory measures are combined by the Government to induce adequate participation in a conservation plan. We study the impact of uncertainty on the optimal conversion policy and discuss conversion dynamics under different policy scenarios on the basis of the relative long-run expected rate of deforestation. Interestingly, we show that uncertainty, even if it induces conversion postponement in the short-run, increases the average rate of deforestation and reduces expected time for total conversion in the long run. Finally, we illustrate our findings through some numerical simulations.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2011.84.

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Date of creation: Nov 2011
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Handle: RePEc:fem:femwpa:2011.84
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