Strange FPE 2019.Pdf
Forest Policy and Economics 104 (2019) 146–156 Contents lists available at ScienceDirect Forest Policy and Economics journal homepage: www.elsevier.com/locate/forpol Afforestation as a real option with joint production of environmental services T ⁎ Niels Strange , Jette Bredahl Jacobsen, Bo Jellesmark Thorsen Department of Food and Resource Economics, Center for Macroecology, Evolution and Climate, University of Copenhagen, Rolighedsvej 23, DK-1958 Frederiksberg C, Denmark ARTICLE INFO ABSTRACT JEL classification: Real option applications in conservation have showed that with irreversibility and uncertainty about the value of Q23 preservation decisions may change. More specifically, returns must be high enough to also pay out the value of Q57 waiting if conversion into more intensive land uses is to become optimal. However, many environmental policies G11 today focus on nature restoration, where conversion has previously taken place. In this study, we therefore D81 reverse the problem and ask when to afforest productive agricultural land, when we face uncertainty about the C61 value of ecosystem services delivered by afforestation. Furthermore, projects such as afforestation are often associated with joint production of forest products and environmental goods, like biodiversity, hunting, Keywords: Afforestation groundwater production, carbon storage, recreation etc. Thus, we extend state-of-the-art models to handle two Nature conservation additive ecosystem services, which both are uncertain and may be correlated. The joint production aspect in- Irreversibility creases the value of conversion, the stopping value, and hence the incentives to afforest. Increasing uncertainty Value of waiting decreases this incentive, as expected. However, contrary to the existing literature evaluating exclusive options, Uncertainty less than perfect correlation between the values of future ecosystem services decreases the value of the real Additive real options option and increases the set of states, where afforestation is the preferred decision.
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