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Urban Containment: An Effective Tool for Environmental Protection?

  • Maria A. Cunha-e-Sa
  • Sofia F. Franco
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    This paper examines the effectiveness of urban containment policies to protect forestland from residential conversion and to increase the provision of forest public goods in the presence of irreversible investments and policy uncertainty. We develop a model of a single landowner that allows for switching between competing land uses (forestry and residential use) at some point in the future. Our results show that urban containment policies can protect (even if temporarily) forestland from being developed but must be supplemented with policies that influence the length and number of harvesting cycles if the goal is to increase nontimber benefits. The threat of a development prohibition creates incentives for preemptive timber harvesting and land conversion. In particular, threatened regulation creates an incentive to shorten rotation cycles to avoid costly land-use restrictions. However, it has an ambiguous effect on forestland conversion as the number of rotation cycles can also be adjusted to maximize the expected returns to land. Finally, in the presence of irreversibility, forestland conversion decisions should be done using real option theory rather than net present value analysis. JEL codes:Q23, R11, R14

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    File URL: http://fesrvsd.fe.unl.pt/WPFEUNL/WP2012/Wp563.pdf
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    Paper provided by Universidade Nova de Lisboa, Faculdade de Economia in its series FEUNL Working Paper Series with number wp563.

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    Length: 43 pages
    Date of creation: 2012
    Date of revision:
    Handle: RePEc:unl:unlfep:wp563
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    1. Elena G. Irwin, 2002. "The Effects of Open Space on Residential Property Values," Land Economics, University of Wisconsin Press, vol. 78(4), pages 465-480.
    2. Conrad, Jon M., 1997. "On the option value of old-growth forest," Ecological Economics, Elsevier, vol. 22(2), pages 97-102, August.
    3. Richard J. Arnott, 1978. "A Simple Urban Growth Model with Durable Housing," Working Papers 284, Queen's University, Department of Economics.
    4. Capozza, Dennis R. & Helsley, Robert W., 1990. "The stochastic city," Journal of Urban Economics, Elsevier, vol. 28(2), pages 187-203, September.
    5. Geoffrey K. Turnbull, 2002. "Land Development under the Threat of Taking," Southern Economic Journal, Southern Economic Association, vol. 69(2), pages 290-308, October.
    6. Strang, William J, 1983. "On the Optimal Forest Harvesting Decision," Economic Inquiry, Western Economic Association International, vol. 21(4), pages 576-83, October.
    7. Tyrvainen, Liisa & Miettinen, Antti, 2000. "Property Prices and Urban Forest Amenities," Journal of Environmental Economics and Management, Elsevier, vol. 39(2), pages 205-223, March.
    8. Capozza, Dennis R. & Li, Yuming, 2002. "Optimal Land Development Decisions," Journal of Urban Economics, Elsevier, vol. 51(1), pages 123-142, January.
    9. Capozza, Dennis R. & Helsley, Robert W., 1989. "The fundamentals of land prices and urban growth," Journal of Urban Economics, Elsevier, vol. 26(3), pages 295-306, November.
    10. Geoffrey Turnbull, 2005. "The Investment Incentive Effects of Land Use Regulations," The Journal of Real Estate Finance and Economics, Springer, vol. 31(4), pages 357-395, December.
    11. Fujita, Masahisa, 1982. "Spatial patterns of residential development," Journal of Urban Economics, Elsevier, vol. 12(1), pages 22-52, July.
    12. Jan K. Brueckner, 1990. "Growth Controls and Land Values in an Open City," Land Economics, University of Wisconsin Press, vol. 66(3), pages 237-248.
    13. Turnbull, Geoffrey K., 2004. "Urban growth controls: transitional dynamics of development fees and growth boundaries," Journal of Urban Economics, Elsevier, vol. 55(2), pages 215-237, March.
    14. Hartman, Richard, 1976. "The Harvesting Decision When a Standing Forest Has Value," Economic Inquiry, Western Economic Association International, vol. 14(1), pages 52-58, March.
    15. Reed, William J., 1993. "The decision to conserve or harvest old-growth forest," Ecological Economics, Elsevier, vol. 8(1), pages 45-69, August.
    16. Leggett, Christopher G. & Bockstael, Nancy E., 2000. "Evidence of the Effects of Water Quality on Residential Land Prices," Journal of Environmental Economics and Management, Elsevier, vol. 39(2), pages 121-144, March.
    17. Englin, Jeffrey E. & Klan, Mark S., 1990. "Optimal taxation: Timber and externalities," Journal of Environmental Economics and Management, Elsevier, vol. 18(3), pages 263-275, May.
    18. Capozza, Dennis & Li, Yuming, 1994. "The Intensity and Timing of Investment: The Case of Land," American Economic Review, American Economic Association, vol. 84(4), pages 889-904, September.
    19. Capozza Dennis R. & Sick Gordon A., 1994. "The Risk Structure of Land Markets," Journal of Urban Economics, Elsevier, vol. 35(3), pages 297-319, May.
    20. Swallow, Stephen K. & Parks, Peter J. & Wear, David N., 1990. "Policy-relevant nonconvexities in the production of multiple forest benefits," Journal of Environmental Economics and Management, Elsevier, vol. 19(3), pages 264-280, November.
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