Optimal Budget Allocations for Protected Area Acquisition To Store Carbon in a Local Community Under Economic Growth Uncertainty

Bijay P. Sharma, Seong-Hoon Cho () and Chad M. Hellwinckel

Agricultural and Resource Economics Review, 2020, vol. 49, issue 2, 209-236

Abstract: We analyze optimal budget allocations to acquire protected areas for carbon storage while balancing risk and return from protection under economic growth uncertainty in a local community. Our study is the first to explore how risk of uncertain economic growth affects cost of protected area acquisition using real estate values at the parcel level, enabling us to estimate the site-specific opportunity cost of carbon storage. The Pareto optimal trade-off frontier between the expected carbon storage benefit and its variance provides a continuum of risk-return combinations. The pattern of the trade-off relationship implies that risk mitigation is less costly in terms of foregone expected benefit when risk is higher than when it is lower. Our results also find that the difference in cluster-specific budget allocations between the strong economic growth scenario and the weak economic growth scenario subsequently decreases between the point of expected benefit maximization and the point of variance minimization. Our findings of optimal hectares of land for protected area acquisition for carbon storage and corresponding benefits and costs serve as an empirically informed knowledge base to help a local community prioritize acquisition of potential protected areas for carbon storage under economic growth uncertainty.

Date: 2020
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