Irreversible and partly reversible investments in the optimal reserve design problem: the role of flexibility under climate change

Charlotte Gerling, Oliver Schöttker and John Hearne

MPRA Paper from University Library of Munich, Germany

Abstract: Climate change causes range shifts of species and habitats, thus making existing reserve networks less suitable in the future. In principle, reserve networks may be adapted to climate change in two ways: by providing additional funds and / or by allowing for the sale of sites to liquidate funds for new purchases. However, due to general negative ecological consequences, selling is often strongly regulated, thus rendering the optimal reserve design a problem of irreversible investment decisions. On the other hand, allowing for sale may be interpreted as an investment with costly reversibility, as involved transaction costs do not allow for full recovery of the initial investment. Whether allowing for the sale of sites to increase flexibility under climate change outweighs the costs of this increased flexibility remains an open question. We develop a conceptual climate-ecological-economic model to find the optimal solution for the reserve design problem under changing climatic conditions and different policy scenarios. These scenarios differ in terms of whether and when additional funds are provided, and whether selling of reserve sites is allowed. Our results show that the advantage of allowing for sales is large when no additional funds are available and decreases as the amount of additional capital provided for adaptation increases. Finally, providing a one-off payment initially instead of regular payments throughout the runtime of the model leads to higher habitat protection.

Keywords: Biodiversity conservation; conservation planning; climate adaptation; climate-ecological-economic modelling; ecological-economic modelling; habitat conservation; irreversible investment; investment of costly reversibility; RD-problem; selling reserve sites (search for similar items in EconPapers)
JEL-codes: C61 C63 Q54 Q57 Q58 (search for similar items in EconPapers)
Date: 2022-02-24
New Economics Papers: this item is included in nep-env
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Citations: View citations in EconPapers (1)

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