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Economics of species change under risk of climate change and increasing information : a (Quasi-)Option value analysis

Author

Listed:
  • Marielle Brunette

    (LEF - Laboratoire d'Economie Forestière - INRA - Institut National de la Recherche Agronomique - AgroParisTech)

  • Sandrine Costa

    (UMR MOISA - Marchés, Organisations, Institutions et Stratégies d'Acteurs - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - INRA - Institut National de la Recherche Agronomique - Montpellier SupAgro - Centre international d'études supérieures en sciences agronomiques - CIHEAM-IAMM - Centre International de Hautes Etudes Agronomiques Méditerranéennes - Institut Agronomique Méditerranéen de Montpellier - CIHEAM - Centre International de Hautes Études Agronomiques Méditerranéennes - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier)

  • Franck F. Lecocq

    (LEF - Laboratoire d'Economie Forestière - INRA - Institut National de la Recherche Agronomique - AgroParisTech)

Abstract

In response to anticipated consequences of global warming on forest ecosystems, some adaptation options are recommended; among them conversion to more adapted timber species. However, large uncertainties remain around the impacts of climate change on current timber species. This paper provides an economic analysis of timber species choice as a tool for adaptation of forests to climate change, taking into account the uncertainty over future mortality rate of current species. We use the framework of cost-benefit analysis, taking uncertainty into account both exogenously, via sensitivity analysis, and endogenously, via (quasi-)option value calculation. We illustrate this approach on the Norway spruce to Douglas-fir example. The main conclusion of this paper is that (quasi-)option value is a relevant economic tool to analyse such a problematic. A case study shows that taking into account the arrival of information over time, within a (quasi-)option value approach, leads to adopt a more flexible management of regeneration (few expenses until more information becomes available) in case of ambiguity on climate change effect. Sequential decision making in case of choice species may allow to avoid some of the sunk costs of immediate choices related to the introduction of a new species or to the immediate clearing for natural regeneration. The case study shows that the adoption of a delay strategy may give substantial benefits, depending on the sunk costs of immediate management options (planting Douglas-Fir, or clearing for natural regeneration of Norway Spruce) and of the subjective probabilities on climate change effects.

Suggested Citation

  • Marielle Brunette & Sandrine Costa & Franck F. Lecocq, 2012. "Economics of species change under risk of climate change and increasing information : a (Quasi-)Option value analysis," Post-Print hal-01000307, HAL.
  • Handle: RePEc:hal:journl:hal-01000307
    Note: View the original document on HAL open archive server: https://hal.science/hal-01000307
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    Cited by:

    1. M. Brunette & M. Hanewinkel & R. Yousefpour, 2020. "Risk aversion hinders forestry professionals to adapt to climate change," Climatic Change, Springer, vol. 162(4), pages 2157-2180, October.
    2. Julie Thomas & Marielle Brunette & Antoine Leblois, 2021. "Adapting forest management practices to climate change : Lessons from a survey of French private forest owners," Working Papers hal-03142772, HAL.
    3. Montagné-Huck, Claire & Brunette, Marielle, 2018. "Economic analysis of natural forest disturbances: A century of research," Journal of Forest Economics, Elsevier, vol. 32(C), pages 42-71.
    4. Dymond, Caren Christine & Giles-Hansen, Krysta & Asante, Patrick, 2020. "The forest mitigation-adaptation nexus: Economic benefits of novel planting regimes," Forest Policy and Economics, Elsevier, vol. 113(C).
    5. Brèteau-Amores, Sandrine & Brunette, Marielle & Davi, Hendrik, 2019. "An Economic Comparison of Adaptation Strategies Towards a Drought-induced Risk of Forest Decline," Ecological Economics, Elsevier, vol. 164(C), pages 1-1.

    More about this item

    Keywords

    Adaptation to Climate Change; Cost-Benefit Analysis; (Quasi-)Option Value; Forest Conversion;
    All these keywords.

    JEL classification:

    • 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
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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