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Optimal conservation, extinction debt, and the augmented quasi-option value

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  • Leroux, Anke D.
  • Martin, Vance L.
  • Goeschl, Timo

Abstract

Optimal conversion defines rules that determine the rate at which land is irreversibly moved out of conservation into production. What are the implications on these rules of allowing for a feedback between conversion decisions and the stochasticity of conservation benefits? We address this question using the well-known ecological mechanism of extinction debt as an illustration. This yields a model with a controlled-diffusion process at its core. We solve this model using a real-options approach, which leads to the conventional conversion rule as a special case. Calibrating the model to a specific case (Costa Rica), we demonstrate the presence of an augmented quasi-option value. The size of this value depends on the strength of the feedback.

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  • Leroux, Anke D. & Martin, Vance L. & Goeschl, Timo, 2009. "Optimal conservation, extinction debt, and the augmented quasi-option value," Journal of Environmental Economics and Management, Elsevier, vol. 58(1), pages 43-57, July.
    • Handle: RePEc:eee:jeeman:v:58:y:2009:i:1:p:43-57
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    5. Leroux, Anke D. & Whitten, Stuart M., 2014. "Optimal investment in ecological rehabilitation under climate change," Ecological Economics, Elsevier, vol. 107(C), pages 133-144.
    6. Gerling, Charlotte & Schöttker, Oliver & Hearne, John, 2022. "The ”climate adaptation problem” in biodiversity conservation: the role of reversible conservation investments in optimal reserve design under climate change," MPRA Paper 114812, University Library of Munich, Germany.
    7. Charles Sims & David Finnoff & Alan Hastings & Jacob Hochard, 2017. "Listing and Delisting Thresholds under the Endangered Species Act," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 99(3), pages 549-570.
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    9. Esther W. Mezey & Jon M. Conrad, 2010. "Real Options in Resource Economics," Annual Review of Resource Economics, Annual Reviews, vol. 2(1), pages 33-52, October.
    10. Chady Jabbour & Anis Hoayek & Jean-Michel Salles, 2022. "Formalizing a Two-Step Decision-Making Process in Land Use: Evidence from Controlling Forest Clearcutting Using Spatial Information," Land, MDPI, vol. 12(1), pages 1-17, December.
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