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Urban Containment: An Effective Tool for Environmental Protection?

Author

Listed:
  • Maria A. Cunha-e-Sa
  • Sofia F. Franco

Abstract

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

Suggested Citation

  • Maria A. Cunha-e-Sa & Sofia F. Franco, 2012. "Urban Containment: An Effective Tool for Environmental Protection?," FEUNL Working Paper Series wp563, Universidade Nova de Lisboa, Faculdade de Economia.
  • Handle: RePEc:unl:unlfep:wp563
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    References listed on IDEAS

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    More about this item

    Keywords

    urban development; forest externalities; rotation cycles; urban conversion; UGB; Greenbelt;

    JEL classification:

    • Q23 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Forestry
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns

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