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Notes on Applying 'Real Options' to Climate Change Adaptation Measures, with Examples from Vietnam

Leo Dobes ()

CCEP Working Papers from Centre for Climate Economics & Policy, Crawford School of Public Policy, The Australian National University

Abstract: A factor common to all adaptation measures is the uncertainty that is the hallmark of climate change. The timing, intensity and location of climate change impacts is not known to any degree of precision. Because most deterministic analyses and policy prescriptions ignore this uncertainty, their recommendations are likely to waste community resources. Except by chance, adaptation measures will either be over-engineered, or they will be inadequate and result in harm. Applying real options thinking allows an incremental and flexible approach. Adaptation measures are implemented only as better knowledge becomes available over time. Several examples are given of real options in the Mekong Delta, with a comparison of net present values of two housing alternatives. It is essential to undertake net present value calculations when comparing different projects to ensure that the value of any options is weighed against other costs and benefits.

Keywords: real options; Vietnam; climate change; adaptation (search for similar items in EconPapers)
JEL-codes: Q54 Q56 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene, nep-env and nep-ppm
Date: 2010-11
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http://ccep.anu.edu.au/data/2010/pdf/wpaper/CCEP-7-10.pdf (application/pdf)

Related works:
Working Paper: Notes on applying ‘real options’ to climate change adaptation measures, with examples from Vietnam (2010) Downloads
Working Paper: Notes on Applying Real Options to Climate Change Adaptation Measures, with examples from Vietnam (2010) Downloads
Working Paper: Notes on Applying Real Options to Climate Change Adaptation Measures, with examples from Vietnam (2010) Downloads
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Persistent link: http://EconPapers.repec.org/RePEc:een:ccepwp:0710

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