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Irreversibility and uncertainty in species valuation

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Show simple item record Brooks, Eileen L. en_US
dc.contributor.other Massachusetts Institute of Technology. Center for Energy and Environmental Policy Research. en_US 2009-12-16T00:01:38Z 2009-12-16T00:01:38Z 1994 en_US
dc.identifier 94007 en_US
dc.description.abstract This paper incorporates an option value into deforestation policy analysis. Similar to an option value in finance, the option value here reflects the advantage to delaying irreversible species extinction until more information about the uncertain value of species is known. The return from species is modeled as a stochastic flow of benefits which ceases if policy makers choose to deforest. Deforestation produces known profits from wood, and agriculture or ranching. Model variations include using geometric Brownian motion and a Poisson jump process to model the variation in species values, and the effect of considering whether "harvesting" of species can occur during deforestation. The model demonstrates that uncertainty over the value of species should encourage forest protection beyond what present discounted value comparisons (traditional cost-benefit analysis) would imply. Data from studies of Brazil's Amazonia region are used to provide numerical examples of the differences between traditional cost-benefit methods and the option-theoretic approach described here. en_US
dc.description.sponsorship Supported by the MIT Center for Energy and Environmental Policy Research, the National Science Foundation, and the Undergraduate Research Opportunities Program at MIT. en_US
dc.format.extent 33 p en_US
dc.publisher MIT Center for Energy and Environmental Policy Research en_US
dc.relation.ispartofseries MIT-CEEPR (Series) ; 94-007WP. en_US
dc.title Irreversibility and uncertainty in species valuation en_US
dc.type Working Paper en_US
dc.identifier.oclc 35721623 en_US

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