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

Leo Dobes ()

Environmental Economics Research Hub Research Reports from Environmental Economics Research Hub, 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.

Date: 2010-11
New Economics Papers: this item is included in nep-env and nep-ppm
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Notes on applying ‘real options’ to climate change adaptation measures, with examples from Vietnam (2010)
Working Paper: Notes on Applying Real Options to Climate Change Adaptation Measures, with examples from Vietnam (2010)
Working Paper: Notes on Applying 'Real Options' to Climate Change Adaptation Measures, with Examples from Vietnam (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:een:eenhrr:1075

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