A Real Option Approach to the Protection of a Habitat Dependent Endangered Species

43 Pages Posted: 16 Jan 2009

See all articles by Skander Ben Abdallah

Skander Ben Abdallah

University of Quebec at Montreal (UQAM) - Department of Economics

Pierre Lasserre

University of Quebec at Montreal (UQAM) - Department of Economics; Center for Interuniversity Research and Analysis on Organization (CIRANO); University of Angers - Research Group in Quantitative Saving (GREQAM)

Date Written: December 1, 2008

Abstract

We use a real option approach to determine optimally when a social planner has to stop or resume logging in situations where an endangered species relies on forest habitat for its survival, and that habitat evolves stochastically. The model incorporates economic, ecological and social features, and is calibrated to generate an optimal forest management rule that balances the benefits from commercial forest exploitation with the risks of extinction facing the endangered species. For the reasonable parameters used in our application to the Rangifer tarandus caribou, an endangered species in Central Labrador (Canada), the policy of banning logging temporarily is quite attractive as it does not require long banning periods while it drastically reduces the extinction risk and increases forest value.

Keywords: real options, biodiversity, endangered species, extinction, forestry

JEL Classification: C61, C63, D81, Q23, Q28

Suggested Citation

Ben Abdallah, Skander and Lasserre, Pierre, A Real Option Approach to the Protection of a Habitat Dependent Endangered Species (December 1, 2008). CIRANO - Scientific Publications 2008s-30, Available at SSRN: https://ssrn.com/abstract=1327977 or http://dx.doi.org/10.2139/ssrn.1327977

Skander Ben Abdallah

University of Quebec at Montreal (UQAM) - Department of Economics ( email )

P.O. Box 8888, Downtown Station
Montreal, Quebec H3C 3P8
Canada

Pierre Lasserre (Contact Author)

University of Quebec at Montreal (UQAM) - Department of Economics

Center for Interuniversity Research and Analysis on Organization (CIRANO)

University of Angers - Research Group in Quantitative Saving (GREQAM)

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