Urban containment: an effective tool for environmental protection?

Maria A. Cunha-e-Sa and Sofia F. Franco

Nova SBE Working Paper Series from Universidade Nova de Lisboa, Nova School of Business and Economics

Abstract: This paper examines the effectiveness of urban containment policies to protect forestland from residential conversion and to increase the provision of forest public goods in the presence of irreversible investments and policy uncertainty. We develop a model of a single landowner that allows for switching between competing land uses (forestry and residential use) at some point in the future. Our results show that urban containment policies can protect (even if temporarily) forestland from being developed but must be supplemented with policies that influence the length and number of harvesting cycles if the goal is to increase nontimber benefits. The threat of a development prohibition creates incentives for preemptive timber harvesting and land conversion. In particular, threatened regulation creates an incentive to shorten rotation cycles to avoid costly land-use restrictions. However, it has an ambiguous effect on forestland conversion as the number of rotation cycles can also be adjusted to maximize the expected returns to land. Finally, in the presence of irreversibility, forestland conversion decisions should be done using real option theory rather than net present value analysis.

Keywords: Urban development; forest externalities; rotation cycles; urban conversion; UGB; Greenbelt (search for similar items in EconPapers)
JEL-codes: Q23 R11 R14 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2012
New Economics Papers: this item is included in nep-env and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:unl:unlfep:wp563

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