A Theoretical Analysis of Habitat Conversion and Biodiversity Conservation Over Time and Under Uncertainty

Abstract

We exploit the known links between natural habitats and biodiversity to pose and study the biodiversity conservation question as an optimal stopping problem. We extend the existing literature on this query by studying the role that autonomous and nonautonomous policies play in the decision to conserve biodiversity over time and under uncertainty. We first construct an intertemporal and stochastic model of decision making in the context of biodiversity conservation. Then, we use this model to analyze the expected utility of a social planner when this planner uses, respectively, autonomous and nonautonomous policies. Finally, we compare and contrast the attributes of autonomous and nonautonomous conservation policies and we discuss the size of the flexibility premium stemming from the maintenance of temporal flexibility in decision making.

Note: This is a description of the paper and not the actual abstract.

Keywords: Flexibility Premium, Biodiversity Conservation, Natural Habitat, Optimal Stopping

JEL Classification: Q28, D81