Bioeconomics of invasive species: using real options theory to integrate ecology, economics, and risk management

Charles Sims, David Finnoff and Jason Shogren

Food Security: The Science, Sociology and Economics of Food Production and Access to Food, 2016, vol. 8, issue 1, No 8, 70 pages

Abstract: Abstract Policy makers face two countervailing incentives in invasive species management—the Pull-incentive to move quickly and the Push-incentive to wait-and-see before making irreversible investments. Real options theory is used to help understand this fundamental trade-off both in design and application. In designing policies, real options theory shows how the management of invasive species should account for the intertwined concepts of ecological risk/ecological irreversibility and economic risk/economic irreversibility. In applying policies, real options theory shows for species spreading slowly with little uncertainty, the push-incentive dominates, advocating a wait-and-see approach. In contrast, for fastspreading species, their diffusion is too fast and too unpredictable to do anything other than act immediately – the pull-incentive dominates. In addition, results indicate both the source and the magnitude of uncertainty matter, but the nature of the impact depends on the irreversibility of the policy decision highlighting the key value of flexibility in policy design and application.

Keywords: Decision-making; Policy options; Pull-incentive; Push-incentive; Uncertainty (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1007/s12571-015-0530-1

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