Wetlands Mitigation Banks: A Developer's Investment Problem

Linda Fernandez and Larry Karp

No 201376, CUDARE Working Papers from University of California, Berkeley, Department of Agricultural and Resource Economics

Abstract: gie study a land developer's decision to invest in a wetlands mitigation bank. The state at which it is optimal to "cash in" the investment in return for restoration credits increases with uncertainty. We calibrate and numerically solve a stochastic control model which describes the developer's investment problem. We study the effect of the parameters of the model on the investment trajectory and the optimal stopping state. A subsidy increases the option value of the investment and the stopping state. A small decrease in the variance of the state dynamics decreases the optit 'ialue of investment and the stopping state.

Keywords: Environmental; Economics; and; Policy (search for similar items in EconPapers)
Pages: 37
Date: 1994-06
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Working Paper: Wetlands Mitigation Banks: A Developer's Investment Problem (1995)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:ucbecw:201376

DOI: 10.22004/ag.econ.201376

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