Option valuation of Philippine forest plantation leases

Roberto C. Yap

Environment and Development Economics, 2004, vol. 9, issue 03, pages 315-333

Abstract: The Philippine forest plantation lease is modelled as an option whose value arises from market uncertainty and the irreversibility inherent in sunk costs required to establish plantations. The value of this option could be a significant factor in the planting decisions of leaseholders. Real options theory could help explain why in spite of the prospects of adequate financial returns, Filipino leaseholders are slow to establish plantations. The opportunity cost of investing is demonstrated to be highly sensitive to uncertainty of the future value of the plantation. Real options analysis is also utilized to evaluate policies intended by the Philippine government to promote plantation development.

Date: 2004

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Persistent link: http://EconPapers.repec.org/RePEc:cup:endeec:v:9:y:2004:i:03:p:315-333_00

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