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

Anke D. Leroux (), Vance Lindsay Martin and Timo Goeschl ()

Journal of Environmental Economics and Management, 2009, vol. 58, issue 1, pages 43-57

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.

Keywords: Biodiversity; conservation; Learning; Endogenous; risk; Real; options; Costa; Rica (search for similar items in EconPapers)
Date: 2009

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Persistent link: http://EconPapers.repec.org/RePEc:eee:jeeman:v:58:y:2009:i:1:p:43-57

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