Economics of Species Change under Risk of Climate Change and Increasing Information: A (Quasi-)Option Value Analysis

Marielle Brunette (), Sandrine Costa and Franck Lecocq ()
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Sandrine Costa: INRA, UMR 1110 MOISA

No 2012-05, Working Papers - Cahiers du LEF from Laboratoire d'Economie Forestiere, AgroParisTech-INRA

Abstract: This paper provides an economic analysis of timber species change as a tool for adapting forests to climate change. We use the framework of cost-benefit analysis, taking uncertainty into account both exogenously, via sensitivity analysis, and endogenously, via (quasi-)option value calculations. We apply the method to assess the economic rationale for converting Norway spruce stands to Douglas-fir in the French Black Mountain. We find that Douglas fir conversion is Land Expected Value (LEV) maximizing under a wide range of a priori (subjective) probability attached to high mortality of Norway spruce under climate change (precisely, for probabilities higher than 0.25-0.31). If information about the impacts of climate change is expected to increase over time, and given the important sunk costs attached to conversion, a delay strategy can be preferable to transition and to status quo when the impacts of climate change on Norway spruce mortality are sufficiently ambiguous. In such cases, getting information earlier increases the LEV by 5-60€/ha. Beyond the specifics of the case study, this paper suggests that quasi-option value is a relevant tool to provide insights to forest owners faced with adaptation decisions in the context of climate change.

Keywords: Adaptation to Climate Change; Cost-Benefit Analysis; (Quasi-)Option Value; Forest Conversion. (search for similar items in EconPapers)
JEL-codes: D81 Q23 Q54 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2012-09, Revised 2012-09
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http://www6.nancy.inra.fr/lef/Cahiers-du-LEF/2012/2012-05 First version, 2010

Related works:
Working Paper: Economics of species change under risk of climate change and increasing information: a (Quasi-)Option value analysis (2012)
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