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Modeling the marginal value of rainforest losses : a dynamic value function approach

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  • Strand,Jon

Abstract

A rainforest can be modeled as a dynamic asset subject to various risks, including risk of fire. Any small part of the forest can be in one of two states: either untouched by forest fire, or already damaged by fire, in which case there is both a local forest loss and increased dryness over a broader area. In this paper, two Bellman equations are constructed, one for unharmed forest and a second for already burnt forest. The analysis solves the two equations for the total expected asset values in each of the two states, assuming that asset returns have a constant growth rate over time. The equations are used for deriving the marginal value of standing (unburnt) rainforest, equivalent to the expected discounted value loss when losing a small additional forest patch. The paper shows that marginal forest value is increased by the additional dryness and forest fire risk that follow from forest fragmentation when additional forest is lost locally. Both forest fires and dryness here serve as ?multipliers? to the basic services return loss, within and outside the forest. The paper also presents a framework for calibrating the impact of the forest fire risk component on forest value.

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  • Strand,Jon, 2015. "Modeling the marginal value of rainforest losses : a dynamic value function approach," Policy Research Working Paper Series 7445, The World Bank.
    • Handle: RePEc:wbk:wbrwps:7445
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    Cited by:

    1. Franklin, Sergio L. & Pindyck, Robert S., 2018. "Tropical Forests, Tipping Points, and the Social Cost of Deforestation," Ecological Economics, Elsevier, vol. 153(C), pages 161-171.
    2. Madalina-Gabriela ANGHEL & Florin Paul Costel LILEA & Stefan Gabriel DUMBRAVA, 2017. "Quality Of The Environment – A Factor Of Sustainable Growth," Romanian Statistical Review Supplement, Romanian Statistical Review, vol. 65(9), pages 141-152, September.
    3. Madalina-Gabriela ANGHEL & Constantin ANGHELACHE & Mirela PANAIT, 2017. "Evolution Of Agricultural Activity In The European Union," Romanian Statistical Review Supplement, Romanian Statistical Review, vol. 65(6), pages 63-74, June.
    4. Madalina-Gabriela ANGHEL & Constantin ANGHELACHE, 2017. "Study On Forestry And Fishing In The European Union," Romanian Statistical Review Supplement, Romanian Statistical Review, vol. 65(6), pages 207-212, June.
    5. Bård Harstad, 2023. "The Conservation Multiplier," Journal of Political Economy, University of Chicago Press, vol. 131(7), pages 1731-1771.

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    More about this item

    Keywords

    Wildlife Resources; Climate Change Mitigation and Green House Gases; Climate Change and Environment; Forestry;
    All these keywords.

    JEL classification:

    • Q23 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Forestry
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • Q57 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Ecological Economics

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