economic hysteresis in hog production german hog production only responds in a very limited way to price fluctuations in the pork market the hog production concentrates on a few regions though it is not bound to special natural conditions such as soil quality furthermore the volume of production does not vary over time relatively high market risks sunk costs and the flexibility of the decision maker to defer investments characterize decision problems in hog production thus the real option approach is chosen to explain the inertia in production capacity by the use of panel data of specialized hog farms from the german farm accountancy data network an empirical investment model is estimated formally the model has the structure of a generalized ordered probit model this approach allows to test for economic hysteresis in the adjustment of hog production capacity the results confirm that uncertainty and flexibility widen the optimal range of inaction

the effects of development constraints on forest management at the urban forest interface this article develops a model of a forest owner operating in a small open city environment where the rent for developed land is increasing concave in nearby preserved open space and is rising over time reflecting an upward trend in households income within this framework we examine how changes in nearby preserved open space and alternative development constraints affect an individual private landowner s decisions regarding both regeneration harvests and conversion dates we also examine how such policies affect development density once conversion from forestry to residential use occurs we show that when residential rents change over time the nature of the timber problem at the urban forest interface changes because it forces us to allow for the possibility of changes in land use from timber to residential use as a result the traditional faustmann setup is not suitable to study forest management decisions at this interface we also find that in the presence of rising income increases in permanently preserved open space hasten regeneration and conversion cuts of a neighboring parcel currently under forest use and leads to lower density development once conversion takes place compared to the case where income is constant we also find that both a binding development moratorium and a binding minimum lot size policy can postpone regeneration and conversion cut dates and thus help to protect open space even if only temporarily however the policies do not have the same effects on development density of converted forestland while the former leads to high density development the latter encourages low density development

option pricing and timberland s land use conversion option reply thomson s response to my recent article zinkhan 1991 in this journal proposes an alternative approach for valuing a timberland land use conversion option the most significant distinction between the zinkhan model zm and the thomson model tm is the selection of different analogies for two black scholes option pricing model parameters the underlying asset price and the exercise price thomson defines the adjusted price of the alternative land use s in his response to be the underlying asset price the sum of the land expectation value for continuous forest production lev and the physical costs associated with converting from timber to the alternative land use cc is treated as the exercise price x in contrast the gap sadj in zinkhan between the price of the alternative land use pal to after adjustment and the highest bid received for the given tract poffo after adjustment serves as the underlying asset price in the zm zinkhan assumes that the exercise price x is the sum of two values as of the time of expiration of the option t cc and the absolute value of the negative impact on lev resulting from a deviation if any from the optimal rotation age i there are several serious problems associated with the tm first the tm does not recognize the landowner s forfeiture of the land use conversion option from timber production to some alternative use if the tract is converted thus the opportunity cost associated with conversion is underestimated given thomson s framework for estimating the land use conversion option s value a solution to the problem would be indeterminable if the exercise price was simply modified through the addition of an estimate of the land use conversion option a solution would be unattainable since exercise price is an input in the process of calculating the same land use conversion option zinkhan partially avoids this problem by utilizing poffo rather than levo when estimating sadj where a bid is considered by the landowner only if poff levo poffo which is subtracted from palto after necessary adjustments in order to maintain the zm analogy for underlying asset price might at least partially reflect the value of the land use conversion option in contrast the tm s lev does not reflect this option value because of the possibility that the market clearing price of the cutover timberland tract at time 0 will

the demand for beer wine and spirits a survey of the literature the demand for alcohol literature is vast and much conflicting information about the nature of the demand for alcoholic beverages has been published this paper presents a survey of the literature and then uses the technique of meta regression analysis to establish insights into the nature of the demand for beer wine and spirits unlike previous meta studies of the demand for alcoholic beverages this study adjusts for the precision of each elasticity estimate the analysis presented suggests reported elasticity estimates will be influenced by such factors as estimation technique data frequency and time period under consideration with respect to time the findings suggest that the demand for alcoholic beverages has become less inelastic since the mid 1950s and that the income elasticity has been falling since the mid 1960s the analysis also found support for the idea that alcohol as a commodity group is a necessity and that consumers respond to price discounting with inventory behaviour rather than true substitution behaviour little support is found for the idea that the demand for alcoholic beverages varies fundamentally across most countries although wine may be an exception language en

the pricing of options on assets with stochastic volatilities one option pricing problem that has hitherto been unsolved is the pricing of a european call on an asset that has a stochastic volatility this paper examines this problem the option price is determined in series form for the case in which the stochastic volatility is independent of the stock price numerical solutions are also produced for the case in which the volatility is correlated with the stock price it is found that the black scholes price frequently overprices options and that the degree of overpricing increases with the time to maturity one option pricing problem that has hitherto remained unsolved is the pricing of a european call on a stock that has a stochastic volatility from the work of merton 12 garman 6 and cox ingersoll and ross 3 the differential equation that the option must satisfy is known the solution of this differential equation is independent of risk preferences if a the volatility is a traded asset or b the volatility is uncorrelated with aggregate consumption if either of these conditions holds the risk neutral valuation arguments of cox and ross 4 can be used in a straightfoward way this paper produces a solution in series form for the situation in which the stock price is instantaneously uncorrelated with the volatility we do not assume that the volatility is a traded asset also a constant correlation between the instantaneous rate of change of the volatility and the rate of change of aggregate consumption can be accommodated the option price is lower than the blackscholes b s 1 price when the option is close to being at the money and higher when it is deep in or deep out of the money the exercise prices for which overpricing by b s takes place are within about ten percent of the security price this is the range of exercise prices over which most option trading takes place so we may in general expect the b s price to overprice options this effect is exaggerated as the time to maturity increases one of the most surprising implications of this is that if the b s equation is used to determine the implied volatility of a near the money option the longer the time to maturity the lower the implied volatility numerical solutions for the case in which the volatility is correlated with the stock price are also examined the stochastic volatility problem has been examined by merton 13 geske 7 johnson 10 johnson and shanno 11 eisenberg 5 wiggins 16 and

the tree cutting problem in a stochastic environment the case of age dependent growth abstract harvest policies are derived for growing biological assets e g forests livestock subject to stochastic age dependent growth and price uncertainty the task posed is analyzed as a continuous time optimal stopping problem for diffusion processes both single and ongoing rotation problems are considered qualitative comparative static and numerical results are provided

technology adoption under uncertainty take up and subsequent investment in zambia technology adoption often requires multiple stages of investment as new information emerges agents may abandon a technology that was profitable in expectation we use a field experiment to vary t

dynamic game results of the acquisition of new technology open and closed loop nash strategies are derived and analyzed for a differential game in which two competing firms choose prices and productive capacity where new technology reduces a firm s unit operating cost using an open loop strategy a firm makes an irreversible commitment to a future course of action for example a contract with a labor union may force a firm to commit to maintaining its entire workforce regardless of its competitor s future realized behavior in contrast using a closed loop strategy a firm s decisions evolve over time continuously responding to the competitor s behavior the dynamic nash strategies obtained for the closed loop model exhibit a more restricted acquisition of new technology and a greater reduction of existing capacity relative to the open loop solutions in addition the dynamic nash price to be charged for output is higher in the closed as opposed to open loop competitive environment numerical solutions are presented to demonstrate that if both firms apply the closed loop approach each will earn higher profits than if one or both firms choose an open loop strategy

economic lot sizing and dynamic quantity competition abstract we study a problem of dynamic quantity competition in continuous time with two competing retailers facing different replenishment cost structures retailer 1 faces fixed ordering costs and variable procurement costs and all inventory kept in stock is subject to holding costs retailer 2 only faces variable procurement costs both retailers are allowed to change their sales quantities dynamically over time following the structure of the economic order quantity eoq model retailer 1 places replenishment orders in batches and retailer 2 follows a just in time jit policy the objective of both retailers is to maximize their individual average profit anticipating the competitor s replenishment and output decisions the problem is solved by a two stage hierarchical optimization approach using backwards induction the second stage model is a differential game in output quantities between the two retailers for a given cycle length at the first stage the replenishment policy is determined we prove the existence of a unique optimal solution and derive an open loop nash equilibrium we show that both retailers follow contrary output strategies over the order cycle the eoq retailer driven by inventory holding costs decreases his market share whereas the output of the jit retailer increases moreover depending on the cost structure the eoq retailer might partially be a monopolist at the first stage the eoq retailer determines the cycle length anticipating the optimal output trajectories at the second stage

evaluating natural resource investments notwithstanding impressive advances in the theory of finance over the past 2 decades practical procedures for capital budgeting have evolved only slowly the standard technique which has remained unchanged in essentials since it was originally proposed see dean 1951 bierman and smidt 1960 derives from a simple adaptation of the fisher 1907 model of valuation under certainty under this technique expected cash flows from an investment project are discounted at a rate deemed appropriate to their risk and the resulting present value is compared with the cost of the project this standard textbook technique reflects modern theoretical developments only insofar as estimates of the discount rate may be obtained from crude application of single period asset pricing theory but see brennan 1973 bogue and roll 1974 turnbull 1977 constantinides 1978 the inadequacy of this approach to capital budgeting is widely acknowledged although not widely discussed its obvious deficiency is its the evaluation of mining and other natural resource projects is made particularly difficult by the high degree of uncertainty attaching to output prices it is shown that the techniques of continuous time arbitrage and stochastic control theory may be used not only to value such projects but also to determine the optimal policies for developing managing and abandoning them the approach may be adapted to a wide variety of contexts outside the natural resource sector where uncertainty about future project revenues is a paramount concern

land use change with spatially explicit data a dynamic approach most of the economic literature that uses spatially explicit data to estimate the determinants of land use change is limited to static models and cross sectional data sets recent attempts to move to a more dynamic analysis include using panel data sets and survival analysis in this study we use a discrete choice dynamic model of land use where the agent s choices are regarded as the solution to a dynamic optimization problem the irreversibility of some decisions expectations about future prices and forward looking behavior of the land operator can all be accounted for our results show that a model specification that incorporates some of the complexities of the decision process improves upon results found in the existing literature first prediction accuracy of land use change is superior to any of the existing models second we demonstrate that models that do not account for transactions costs tend to overestimate the effects of changes in transportation costs

carbon subsidies taxes and optimal forest management we consider the effect of carbon credit payment schemes on forest owners land use and harvest decisions we study two possible credit allocation regimes one where credits are allocated according to the actual amount of carbon sequestered by the trees on a piece of land and another where credits are allocated according to the long run potential to sequester carbon on the land using a real options model with uncertain future timber prices we examine the effect on the timing of harvests and the replanting abandonment decision we show that both schemes discourage deforestation compensating growers for actual carbon sequestration leads to longer rotation periods between harvests while basing compensation only on the long run potential level of sequestration induces shorter rotation periods the former scheme leads to greater benefits of carbon sequestration at lower cost than the latter scheme although inducing moderate levels of sequestration is expensive under both schemes the cost falls dramatically when the level of payments climbs above some threshold indeed providing the payments are sufficiently generous carbon credit payment schemes offer an effective means of increasing carbon sequestration

a microeconometric model analysis of us consumer demand for alcoholic beverages this paper discusses the specification and estimation of a two stage budgeting consumer demand for alcoholic beverages using 1987 88 usda individual and household food consumption survey data the upper level first stage budgeting decision is modelled via a gamma tobit model the lower level second stage budgeting allocates alcohol expenditure via a synthetic demand system for beer spirits and wine the synthetic system is constructed via a normalized linear combination of the level rotterdam cbs and an aids equivalent model data on individual three day alcohol consumption from the individual food intake survey are used for analysis while price and household characteristics information are obtained from the house hold food intake survey the results show that some individual and household characteristic variables as well as economic variables have significant impacts on consumer demand for alcoholic beverages

swedish norwegian tradable green certificates scheme design flaws and perceived investment barriers abstract the eu commission recommends using market based support schemes for renewable electricity projects one example is the swedish norwegian tradable green certificate scheme we examine whether design features in the norwegian part of this scheme specifically the scheme s short duration and the way it is to be abruptly terminated contribute to investors perceptions of barriers we apply econometric techniques on primary data collected in two surveys of norwegian investors in hydropower and we use real options theory to predict and interpret investors responses we show that 1 immediately after the scheme was introduced investors are eager to lock in future subsidies by investing immediately and concerned with factors that may delay the completion of their projects 2 as the certificate deadline neared investors have become increasingly pessimistic and concerned with economic and risk barriers investors in big hydropower plants with regulation reservoirs are particularly concerned with the risk of not completing their projects in time to gain the right to sell certificates these findings are consistent with the predicted responses to the scheme design derived from real options theory in contrast to earlier studies we find no difference in responses to the scheme design across investor types

insights on the effect of land use choice the perpetual option on the best of two underlying assets abstract we consider the effect of land use choice on speculative land value and on development timing as reflected in the optimal hurdle ratio which triggers immediate development we find that land use choice i e multiple use zoning may add over 40 to land value under typical economic circumstances the conditions for optimal development of the land become markedly more difficult to achieve higher hurdle ratio required when the two land uses have similar values indeed a rational indecision result obtains in theory development will never occur when the two land use choices have equal value

forest conservation in costa rica when nonuse benefits are uncertain but rising stochastic dynamic programming is used to investigate optimal holding of primary tropical forest in humid costa rica when future nonuse benefits of forest conservation are uncertain and increasing the quasi option value of maintaining primary forests is included as a component of investment in natural capital although the impact of uncertainty on conservation incentives is substantial our results indicate that a rising trend in future benefits and compensation by the international community for beneficial spillovers are more important factors in determining optimal holdings of forest stocks without compensatory payments however further deforestation may be warranted

on estimating the option value of preserving a wilderness area in this paper option pricing theory is used to analyse whether or not to preserve a wilderness area a numerical approach is demonstrated that can be applied to any generalized stochastic process the impact of assuming that amenity value follows a logistic process rather than geometric brownian motion is considered the calculation of critical levels for amenity value necessary to justify preserving a wilderness area such as the killarney provincial park in ontario or the headwaters forest in california is demonstrated the impact of changing the assumed growth and volatility of amenity value is also examined jel classifcation d81 q26 ce memoire utilise la theorie de la tarification d une option pour analyser si on doit preserver un espace naturel on utilise une approche numerique qui peut etre appliquee a tout processus stochastique generalise on examine l impact de possibilites que le profil de la valeur de la ressource dans la temps suive un processus logistique plutot qu un pattern geometrique de type brownien le texte montre le calcul des niveaux critiques de la valeur de la ressource qui seraient necessaires pour justifier la preservation d une espace naturel comme le parc provincial killarney en ontario ou les forets headwaters en californie l impact de postulats differents quant a la croissance et a la volatilite de la valeur de la ressource est examine

enduring impacts of land retirement policies evidence from the conservation reserve program we examine the persistence of cropland retirements induced by the conservation reserve program crp the largest u s conservation program we analyze micro data on observed land use choices following crp contract expiration over 1995 1997 and predict that 42 of crp acres would not have been returned to crops within a year if the program had expired in 1997 these results indicate that temporary cropland retirement payments under crp generate land use changes that often extend beyond contract periods the analysis suggests that targeted signing bonuses for first time enrollees would increase the longer term impacts of crp and perhaps other incentive based land use programs

what drives our beer consumption in search of nutrition habits and demographic patterns conventional wisdom in germany claims pork hocks with sauerkraut and beer but is it really that simple in an unbalanced cross country panel covering 169 nations and time series records of up to 5

does ecological economics have a future contradiction and reinvention in the age of climate change abstract this paper addresses the role of neoclassical methodologies in ecological economics and the contradictions these methodologies pose to the field s critical founding principles we first consider robert costanza s treatment of nicholas stern s global deal and then survey climate change related articles published in this journal over the past five years this survey reveals how mainstream neoclassical methodologies dominate discourse and do so by marginalizing more critical political economy analyses this situation imperils the field s founding vision of a no growth steady state it also fails to address the related growth dynamics of capitalism without such a critical treatment the field s formal embrace of methodological pluralism actually entails an ideological empiricism that renders ecological economics theoretically incoherent this situation undermines the field s historical promise as an alternative economic paradigm ecological economics now faces a problematic future its survival in a form faithful to its founding vision will require an explicit choice to address its internal contradictions and reinvent itself in ways relevant to our contemporary context without such a choice ecological economics will likely succumb to an implicit acceptance of the hegemony of mainstream economic methodologies and their pro growth imperatives

competition and outsourcing with scale economies scale economies are commonplace in operations yet because of analytical challenges relatively little is known about how firms should compete in their presence this paper presents a model of competition between two firms that face scale economies i e each firm s cost per unit of demand is decreasing in demand a general framework is used which incorporates competition between two service providers with price and time sensitive demand a queuing game and competition between two retailers with fixed ordering costs and pricesensitive consumers an economic order quantity game reasonably general conditions are provided under which there exists at most one equilibrium with both firms participating in the market we demonstrate in the context of the queuing game that the lower cost firm in equilibrium may have a higher market share and a higher price an enviable situation we also allow each firm to outsource their production process to a supplier even if the supplier s technology is no better than the firms technology and the supplier is required to establish dedicated capacity so the supplier s scale can be no greater than either firm s scale we show that the firms strictly prefer to outsource we conclude that scale economies provide a strong motivation for outsourcing that has not previously been identified in the literature

the implementation costs of forest conservation policies in brazil abstract tropical forest conservation is considered a low cost option for climate change mitigation but mitigation cost assessments have featured opportunity costs neglecting policy implementation costs here we use official data to identify the brazilian federal government s operational and institutional budgets related to forest conservation policies implemented from 2000 to 2014 we distinguish the allocated and executed budgets of these policies and provide scenario based estimates of their cost effectiveness on average brazil spent us 1 billion year on forest conservation policies at the federal level brazil s substantial reduction in annual forest loss after 2004 was accompanied by a higher operational budget execution of disincentive based policy instruments and an absolute increase in both allocated and executed institutional budgets the post 2004 successful mitigation effort represented additional implementation costs to the brazilian federal government of us 308 923 ha of avoided deforestation or us 0 87 2 60 tco2 of avoided emissions factoring in also approximate municipal and state expenditures these costs increase to us 385 1153 ha or us 1 09 3 25 tco2 we conclude that implementations costs are non trivial in size including compared to estimates of land users opportunity costs this has important implications for redd policy design in the sense that implementation costs need to be adequately considered

options on the minimum or the maximum of two risky assets analysis and applications this paper provides analytical formulas for european put and call options on the minimum or the maximum of two risky assets the properties of these formulas are discussed in detail options on the minimum or the maximum of two risky assets are useful to price a wide variety of contingent claims of interest to financial economists applications discussed in this paper include the valuation of foreign currency debt option bonds compensation plans risk sharing contracts secured debt and growth opportunities involving mutually exclusive investments

the additionality problem with offsets optimal contracts for carbon sequestration in forests abstract carbon offsets are a frequently discussed tool for reducing the costs of an emissions reduction policy however offsets have a basic problem stemming from asymmetric information sellers of offsets have private information about their opportunity costs leading to concerns about whether offsets are additional non additional offsets can undermine a cap and trade program or if the government purchases them directly result in enormous government expenditures we analyze contracts for carbon sequestration in forests that mitigate the asymmetric information problem landowners are offered a menu of two part contracts that induces them to reveal their type under this scheme the government is able to identify ex post how much additional forest each landowner contributes and minimize ex ante its expenditures on carbon sequestration to explore the performance of the contracting scheme we conduct a national scale simulation using an econometric model of land use change the results indicate that for an increase in forest area of 61 million acres government expenditures are 5 3 billion lower under the contracting approach compared to a uniform subsidy offered to all landowners this compares to an increase in private opportunity costs of just 110 million dollars under the contracts thus the contracting scheme is preferable from society s perspective

conservation payments under risk a stochastic dominance approach conservation payments can be used to preserve forest and agroforest systems to explain landowners land use decisions and determine appropriate conservation payments it is necessary to focus on revenue risk marginal conditional stochastic dominance rules are used to derive conditions for determining the conservation payments required to guarantee that the environmentally preferred land use dominates an empirical application to shaded coffee protection in the biologically important choco region of west ecuador shows that conservation payments required for preserving shaded coffee areas are much higher than those calculated under risk neutral assumptions further the extant distribution of land has strong impacts on the required payments

impacts of carbon based policy instruments and taxes on tropical deforestation the impacts of carbon payments and income taxes on curbing tropical forest loss are analyzed under a market equilibrium framework the supply of cleared forest land was derived by using a two period utility maximization model when the carbon sequestration of a private forestholder is credited the land demand was derived from the profit maximization problem of a cash crop farmer the model was applied to data from the humid chaco eco region of paraguay the results indicate that taxes on cash crop and forestry incomes may in fact be ineffective in curbing forest loss carbon payments however would effectively reduce forest clearing in the context studied a carbon payment of 30 per ton of carbon would limit deforestation to 10 of existing forest cover a reversible carbon crediting system in which a forestholder can redeem a credited forest seems to substantially increase at least in the short run the effectiveness of carbon payments carbon payments could also complement the tax on cash crop income in curbing tropical forest loss an effective policy to combat tropical deforestation should therefore jointly consider forestry and cash crop sectors

applications of option pricing theory twenty five years later nobel lecture to the memory of alfred nobel december 9 1997 this abstract was borrowed from another version of this item

agricultural expansion and deforestation modelling the impact of population market forces and property rights abstract this paper compares four different modelling approaches to agricultural expansion and deforestation and explores the implications of assumptions about the household objectives the labour market and the property rights regime a major distinction is made between population and market based explanations many of the popular policy prescriptions are based on the population approach assuming subsistence behaviour and limited market integration within a more realistic particularly for the long term effects market approach well intentioned policies such as agricultural intensification programmes may boost deforestation many forest frontier contexts are also characterized by forest clearing giving farmers land rights deforestation becomes an investment to the farmer and a title establishment strategy land titling and credit programmes may therefore increase deforestation

options uncertainty and sunk costs an empirical analysis of land use change abstract in a real option model of land conversion incorporating return uncertainty and sunk costs optimal conversion thresholds are significantly higher than those from expected net present value models not accounting for these factors empirical tests of conversion from agriculture to forest suggest that landowners value the option to convert when making conversion decisions higher uncertainty in returns to all potential uses and lower correlation between shocks to agricultural and forest returns decreases the likelihood of conversion estimates indicate a significant impact on conversion decisions with approximations of option values ranging from 7 to 81 of the expected value of the land asset

the effect of agricultural policies on land use and environmental quality in this paper i consider the environmental quality gains that may be achieved by reducing agricultural income supports a new methodology is developed to estimate land use shares in an application to wisconsin milk price support reductions result in shifts of marginal agricultural land to forest reducing soil erosion and providing off site water quality improvements the environmental benefits are estimated to be at least as large as the decreased welfare burden on consumers and taxpayers indicating a central role for environmental quality considerations in motivating policy reforms and a more efficient means of achieving the environmental quality goals of land retirement programs

searching for an optimal rotation age for forest stand management under stochastic log prices due to rapid change in timber prices in the japanese market most likely affected by imported timber from countries such as the u s canada and the nordic countries the domestic forest managers have been facing a large degree of future price uncertainty because of this it becomes necessary to take the future price uncertainty into account within the forest management framework in this paper the continuous time stochastic process i e the geometric brownian motion has been used to model the log price process the binomial option pricing approximation was then applied to value the sugi cryptomeria japonica and hinoki chamaecyparis obtusa forested land under stochastic log prices in order to search for an optimal rotation age our experiments with the proposed two state stochastic dynamic programming model showed that when the current log price is high enough to cover all costs an optimal rotation age from the stochastic price and deterministic price models coincides although the total expected present net value from management activities differs also it was shown that as the current log price decreases an optimal rotation age derived from the stochastic price model becomes longer than that from the deterministic price model if the current log price further decreases then forest management will be abandoned and the forest stand will be converted into alternative uses

how not to pay field experimental evidence on the design of redd payments abstract payments for ecosystem services pes can use many design features we investigate the impact of payment conditionality types i e different specifications when to pay and when not to pay for pes on deforestation and agricultural production in a lab in the field experiment our experiment also tests variations in contract period and payment volatility we designed a highly visual simulation game to characterize the decision situation of a cattle rancher in brazil the player can expand extensive pasture by deforestation or intensify existing pasture the model includes both a land and a capital constraint we applied the game in an economic framed lab in the field experiment in tocantins brazil payments conditional on forest carbon stock lead to slow but steady deforestation while payments conditional on forest carbon stock change suppressed deforestation more strongly but payments conditional on stock increase cattle production while payments conditional on stock change have no effect on production thus depending on the level of leakage either type of conditionality can be more cost effective in reducing global carbon emissions contracts with limited periods lead to strong deforestation after the end of the payment period payment volatility had no significant effect

the costs of carbon sequestration a revealed preference approach increased concem by policy makers with the threat of global climate change has brought with it considerable attention to the possibility of encouraging the growth of forests as a means of sequestering carbon dioxide national academy of sciences nas 1992 james p bruce et al 1996 1 the kyoto protocol to the united nations framework convention on climate change 1997 which establishes emission reduction targets for the united states and other industrialized nations states that carbon sequestration can be used by participating nations to achieve their targets moreover even before the kyoto agreement this approach had become an explicit element of both u s and intemational climate policies u s department of energy 1991 united nations general assembly 1992 william j clinton and albert gore 1993 this high level of interest has been due in part to suggestions that sufficient lands are available to use the approach to mitigate a substantial share of annual carbon dioxide c02 emissions greg marland 1988 daniel a lashof and dennis a tirpak 1989 mark c trexler 1991 and claims that growing trees to sequester carbon is a relatively inexpensive means of combating climate change roger a sedjo and allen m solomon 1989 daniel j dudek and alice leblanc 1990 nas 1992 in other words the serious attention given by policy makers to carbon sequestration can partly be explained by implicit assertions about respective marginal cost functions i develop and demonstrate a method by which the costs of carbon sequestration can be estimated on the basis of evidence from landowners behavior when confronted with the opportunity costs of alternative land uses the simplest of previous economic analyses derived single point estimates of average costs associated with particular sequestration levels marland 1988 sedjo and solomon 1989 dudek and leblanc 1990 edwin s rubin et al 1992 omar masera et al 1995 often it has been assumed that land opportunity costs are zero g van kooten et al 1992 j k winjum et al 1992 new york state energy office 1993 robert k dixon et al 1994 another set of studies essentially engineering costing models has constructed marginal cost schedules by using information on revenues and costs of production for altemative uses on representative types or locations of land and then sorting these in ascending order of cost robert j moulton and kenneth r richards 1990 richards et al 1993 simulation models include a model of the lost profits due to removing land from agricultural production peter j parks and ian w hardie 1995 a mathematical programming model of the agricultural sector and the timber market richard m adams et al 1993 a related model incorporating the effects of agricultural price support programs j m callaway and bruce mccarl 1996 and a dynamic simulation model of forestry susan swinehart 1996 lastly an analysis by andrew j plantinga 1995 adopts land use elasticities from an econometric study to estimate sequestration costs we draw on some of the best features of the previous studies including the carbon levelization method of moulton and richards john f kennedy school of government harvard university 79 john f kennedy street cambridge ma 02138 and resources for the future richard newell supplied excellent research assistance and valuable comments on a previous version were provided by lawrence goulder william nordhaus andrew plantinga kenneth richards two anonymous referees participants in seminars at the universities of california at los angeles and santa barbara the university of maryland the university of michigan the university of texas harvard university stanford university yale university resources for the future and the national bureau of economic research the author alone is resdonsible for any errors 1 after fossil fuel combustion deforestation is the second largest source of carbon dioxide emissions estimates of annual global emissions from deforestation range from 0 6 to 2 8 billion tons compared with slightly less than 6 0 billion tons annually from fossil fuel combustion cement manufacturing and natural gas flaring combined r a houghton 1991 t m smith et al 1993

joint dynamic pricing and lot sizing under competition abstract we study the joint dynamic pricing and lot sizing problem when firms operate in a competitive environment bearing in mind that a dynamic pricing strategy is successful when customers understand it we assume each firm selects prices from a discrete set the problem corresponds to a bertrand model so the pricing strategies of the firms should constitute a nash equilibrium given the combinatorial nature of the decisions computing the equilibrium in a tractable time may not be feasible for larger instances in order to compute the equilibrium efficiently we propose a framework consisting of solving iteratively mixed integer programming formulations the framework reduces the complexity of the problem by using the fact that pricing and inventory planning remain stable to marginal variations in competitors prices

property tax policy and land use change in this study we analyze the effect of property taxes on changes between agricultural forestry conservation reserve program and developed land uses in louisiana we estimate a random parameters logit model of land use conversion from the national resources inventory plot data our results indicate that land use changes are inelastic with respect to property taxes simulation shows that current use valuation policy while slowing down development of rural lands also affects changes between rural land uses

conservation payments under uncertainty the decision of whether to retain forest or convert to another land use is affected by uncertainty over future land use returns this paper examines the design of conservation payments to landowners under uncertainty payments are either indexed to the returns from deforestation agriculture or to a market value associated with forest nonuse benefits payment size depends on the degree of correlation between payments and agricultural returns and their relative volatility market based payments for reducing emissions from deforestation and degradation redd are simulated for brazilian soybean growers payments indexed to carbon prices are larger than those indexed to international soybean prices

the intensity and timing of investment the case of land the authors model the decision to replace durable capital when intensity is variable decisions of this type include land redevelopment decisions where the density of residential or commercial development is a choice variable as well as capital replacement decisions where capacity is variable the authors provide a general yet simple formation of the problem using an optimal stopping framework they characterize the value of the project the timing of investment and the intensity of development the authors show that intensity interacts in important ways with timing taxes and project values the ability to vary intensity raises hurdle rents and delays development decisions copyright 1994 by american economic association

targeting incentives to reduce habitat fragmentation the fragmentation of wildlife habitat has long been recognized as a principal threat to terrestrial biodiversity in this paper we develop a theoretical model to analyze the spatial targeting of incentives for the restoration of forested landscapes when land quality is spatially heterogeneous and wildlife habitat can be enhanced by reducing fragmentation we consider a regulator who uses subsidies to encourage the conversion of private agricultural land to forest on a pre defined set of landscapes the regulator can observe land use choices but not the opportunity costs on individual land parcels the important insight to emerge from the theoretical analysis is that solutions at or near corners are a strong possibility on each landscape either none or all of the agricultural land should be converted to forest corner solutions are directly linked to the spatial process determining habitat benefits to verify the theoretical insight we present a simulation of the effects of incentive based policies on the spatial distribution of forests in south carolina the empirical methodology integrates an econometric model of land use change with gis based landscape simulations the empirical findings strongly support our conjecture regarding corner solutions and the optimal targeting policy is shown to produce substantial welfare gains over a spatially uniform incentive

land price volatility in a geographically dispersed market historical evidence and theory lead to a hypothesis that land price variation increases with distance to market this hypothesis is tested with county data from five cornbelt states during the period 1969 to 1987 when price changes were unusually large our data support the hypothesis in the 70s prices increased more in the western cornbelt than in the eastern cornbelt in the 80s the western cornbelt experienced the more precipitous price declines our hypothesis explains why great plains farmers have experienced greater financial problems during times of stress than have many other farmers

option valuation of claims on real assets the case of offshore petroleum leases this paper extends financial option theory by developing a methodology for the valuation of claims on a real asset an offshore petroleum lease several theoretical and practical problems not present in applying option pricing theory to financial assets are addressed most importantly we show the necessity of combining option pricing techniques with a model of equilibrium in the market for the underlying asset petroleum reserves the advantages of this approach over conventional discounted cash flow techniques are emphasized the methodological development provides important insights for both company behavior and government policy promising empirical results are reported

alcohol consumption censorship and misjudgement in the study of the economic determinants of alcohol consumption there is an under appreciated issue of sample selectivity as consumption is often not fully observed sample selectivity involves i

permanent and temporary policy incentives for conservation under stochastic returns from competing land uses rapid conversion of private land for agricultural and urban use has raised concern worldwide over the loss of ecological services to inform conservation policy we model privately optimal land use decisions using a real options framework that assumes both the ecological and commercial values of land are stochastic and that land conversion is irreversible we analyze permanent and temporary land conservation policy incentives using this dynamic framework to guide policy makers interested in designing efficient payment mechanisms to achieve ecological preservation goals we find that while the financial cost of temporary policy incentives is generally much lower than permanent policy incentives this difference is very small in scenarios with high discount rates and lower uncertainties in conversion returns and lower expected trend in conservation returns alternately the financial cost of temporary conservation is substantially lower than that of permanent conservation when the expected trend in conservation returns and uncertainties in conservation and conversion returns is high and the discount rate is low comparison with net present value and single source uncertainty models indicates that the presence of a second uncertainty increases the option value of delaying conversion and shows that permanent and temporary policy incentives based on either of the two simpler models can be seriously misguided if multiple uncertainties are present we illustrate the analytical results with a case study of tropical deforestation in indonesia where private landowners can either conserve forests and earn carbon credits or convert to palm oil agriculture and earn profits from the sale of palm oil

the spillover effects of biofuel policy on participation in the conservation reserve program abstract this paper studies the spillover effects of rising biofuel production on participation in the conservation reserve program landowner participation decisions are modeled using a real options framework we develop a land use decision model that captures biofuel driven structural changes in market demand and derive threshold conditions that trigger participation in the program we then quantify the impacts of biofuel production on participation at both the national and state levels using monte carlo simulations the model is also used to analyze how changes in the persistence of the biofuel production boom and in the volatility of farming returns affect conservation participation decisions policy implications of the results are discussed

an empirical examination of the timing of land conversions in the presence of farmland preservation programs using a panel of parcel level data we estimate a hazard model and find strong evidence that the mere existence of an option to preserve farmland delays decisions to convert farmland to developed uses by about six years a reduction in median conversion time of 12 to 43 depending on parcel size where such delays allow local governments to improve infrastructure or implement stricter growth control measures benefits of a preservation option may be even more long term also increases in the variance of returns to development tended to slow conversion for parcels with all but the highest lot capacities copyright 2008 oxford university press

pricing production scheduling and delivery time competition this paper studies competition between firms that produce goods or services for customers sensitive to delay time firms compete by setting prices and production rates for each type of customer and by choosing scheduling policies the existence of a competitive equilibrium is proved the competitive equilibrium is well defined whether or not a firm can differentiate between customers based upon physical characteristics because each customer has incentive to truthfully reveal its delay cost further insights are derived in two special cases a unique equilibrium exists for each of the cases in the first case firms are differentiated by cost mean processing time and processing time variability but customers are homogeneous the conclusions include that a faster lower variability and lower cost firm always has a larger market share higher capacity utilization and higher profits however this firm may have higher prices and faster delivery time or lower prices and longer delivery time in the second

competitive strategies for two firms with asymmetric production cost structures we model joint production marketing strategies for two firms with asymmetric production cost structures in competition the first firm called the production smoother faces a convex production cost and a linear inventory holding cost the second firm called the order taker faces a linear production cost and holds no inventory each firm is assumed to vary continuously over time both its production rate and its price in view of an unstable surge pattern of demand the underlying theoretical motivation is to investigate the temporal nature of the equilibrium policies of two competing firms one operating at or near capacity the production smoother and one operating significantly below capacity the order taker we characterize and compare the equilibrium strategies of the two competing firms among our results we show that if the duopolistic production smoother finds it optimal to hold inventory then he will begin the season by building up inventory continue by drawing down inventory until i

biological conservation in dynamic agricultural landscapes effectiveness of public policies and trade offs with agricultural production article i nfo land use change and land management intensification are major drivers of biodiversity loss especially in agricultural landscapes that cover a large and increasing share of the world s surface incentive based agri environmental policies are designed to influence farmers land use decisions in order to mitigate environmental degradation this paper evaluates the effectiveness of agri environmental schemes for biological conservation in a dynamic agricultural landscape under economic uncertainty we develop a dynamic ecological economic model of agricultural land use and spatially explicit population dynamics we then relate policies subsidies to grassland taxation of agricultural intensity to the ecological outcome probability of persistence of a species of interest we also analyze the associated trade offs between agricultural production in value and biological conservation in probability of persistence at the landscape scale

optimal pricing and production in an inventory model abstract this paper deals with the problem of simultaneously determining the optimal price policy and production rate over a given planning horizon for nonlinear demand functions and convex inventory and shortage cost functions the optimal solution paths are derived by using optimal control theory the treatment of linear nonsmooth cost functions requires the use of a generalized maximum principle the solution method is a phase portrait analysis providing insight into the optimal pricing and production policies as well as the resulting inventory paths moreover it is shown that in the case of nonsmooth piecewise linear cost functions the equilibrium is approached within finite time although the model is nonlinear in the control variables finally it is illustrated that exogenous fluctuations in the demand rate seasonal demand pattern amount to cyclical optimal solutions

production and spatial distribution of switchgrass and miscanthus in the united states under uncertainty and sunk cost abstract the u s cellulosic biofuel mandate has not been enforced in recent years uncertainty surrounding the enforcement of the mandate in addition to high production and harvest cost have contributed to a delay in the widespread planting of bioenergy crops such as switchgrass and miscanthus previous literature has shown that under uncertainty and sunk cost an investment threshold is further increased due to the value associated from holding the investment option in this paper we extend the previous literature by applying a real option switching model to bioenergy crop production first we calculate the county level break even price which triggers a switching away from traditional field crops corn soybeans and wheat to bioenergy crops under various scenarios differing by commodity prices production cost and biomass price expectations we show that the resulting break even prices at the county level can be substantially higher than previously estimated due to the inclusion of the option value in a second step we identify counties that are most likely to grow switchgrass or miscanthus by simulating a stochastic biomass price over time our results highlight two issues first switchgrass or miscanthus are not grown in the midwest under any scenario under low agricultural residue removal rates biomass crops are mostly grown in the southeast second under the assumption of a high removal rates bioenergy crops are not grown anywhere in the u s since the cellulosic biofuel mandate can be covered by agricultural residues

arbitrage pricing capital asset pricing and agricultural assets a new asset pricing model the arbitrage pricing theory has been developed as an alternative to the capital asset pricing model the arbitrage pricing theory model is used to analyze the relationship between risk and return for agricultural assets the major conclusion is that the arbitrage pricing theory results support previous capital asset pricing model findings that the estimated risk associated with agricultural assets is low this conclusion is more robust for the arbitrage pricing theory application because it provides a better explanation of the relationship between risk and returns than does the capital asset pricing model

switching to perennial energy crops under uncertainty and costly reversibility we study a farmer s decision to convert traditional cropland into land for growing dedicated energy crops taking into account sunk conversion costs and uncertainties in crop returns the optimal decision rules differ significantly from the expected net present value rule which ignores uncertainties and from real options models that allow only one way conversion into energy crops these models also predict drastically different patterns of land conversions into and out of energy crops over time using corn soybean rotation and switchgrass as examples we show that the model predictions are sensitive to assumptions about stochastic processes of the returns government policies might have unintended consequences subsidizing conversion costs into switchgrass may not much affect proportions of land in switchgrass in the long run

options on the maximum or the minimum of several assets using an intuitive approach that also provides new intuition concerning the black and scholes equation this paper extends the results of johnson and stulz to the pricing of options on the minimum or the maximum of several risky assets

harvest decisions and asset valuation for biological resources exhibiting size dependent stochastic growth optimal harvest rules and preharvest valuation procedures are derived for biological assets with stochastic size dependent growth in a stochastic price environment these issues are analyzed as continuous time optimal stopping problems both the single rotation and ongoing rotations problems are addressed the sensitivity of harvest and valuation rules is assessed the results are compared with those derived from a myopic look ahead procedure and with the corresponding findings for age dependent growth copyright 1990 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

on the use of period average stumpage prices to estimate forest asset pricing models several recent papers thomson 1987 zinkhan 1988 zinkhan and mitchell 1988 cubbage harris and redmond 1988 binkley and washburn 1988a 1988b including one in this journal redmond and cubbage 1988 use either sharpe s 1963 single index market model with returns to the overall market portfolio serving as the index or the capital asset pricing model capm sharpe 1964 lintner 1965 to measure the risk and evaluate the performance of timberland investments the capm specifies an equilibrium relationship between asset i s expected rate of return eri the risk free rate of return rf and the expected risk premium on the market portfolio of all assets in the economy the expected market rate of return erm minus the risk free rate rf

optimal forest rotation when stumpage prices follow a diffusion process a key assumption in the faustmann rule for financial maturity is that stumpage prices are constant over time timber price series however exhibit wide fluctuations over time which this paper models as a lognormal diffusion process comparing the diffusion results modeled here to the fixed price faustmann results show 1 the prescribed rotation length is generally longer 2 computed stand values are higher using the diffusion model with the greatest divergence occurring when a stand is about the midpoint of a rotation 3 as the stumpage price volatility increases the gain in computed npv increases though in a nonlinear fashion

on the valuation of american call options on stocks with known dividends both the roll and the geske equations for the valuation of the american call option on a stock with known dividends are incorrectly specified this note presents the corrected valuation formula explains the misspecifications and provides a numerical example

getting more carbon bang for your buck in acre state brazil abstract acre state in brazil is at the forefront of efforts to institutionalize jurisdictional scale policies that aim to reduce emissions from deforestation and forest degradation redd given limited redd funds and uncertain returns from alternative land uses this paper estimates the minimum incentive payment acre s government would have to pay forest landowners in each of its 22 municipalities to ensure forest conservation despite lower profits but with lower conversion costs and more stable returns over time relative to corn and coffee production cattle pasture generates the highest returns in 19 municipalities municipalities are ranked according to their relative policy costs a ranking which is compared to the distribution of forest carbon stocks across acre finally the relative cost per tonne of carbon is derived which enables the identification of a group of 13 municipalities with the greatest potential for carbon bang for a given buck

structural estimation of the stochastic dynamic decision problems of resource users an application to the timber harvest decision abstract this paper examines a method for structural estimation of the stochastic dynamic decision problems of resource users the method involves nesting a stochastic dynamic programming algorithm within a maximum likelihood routine an application to the timber harvest decision indicates that owners of slash pine plantations in southeast georgia use a low discount rate and treat timber price as a random walk moreover the harvest decision is apparently dominated by profit shocks overlooked in the usual models of the harvest decision

the impact of dynamic pricing on the economic order decision this paper analyzes the impact of dynamic pricing on the single product economic order decision of a monopolist retailer items are procured from an external supplier according to the economic order quantity eoq model and are sold to customers on a single market without competition following the simple monopolist pricing problem coordinated decision making of optimal pricing and ordering is influenced by operating costs including ordering and inventory holding costs and the demand rate obtained from a price response function the retailer is allowed to vary the selling price either in a fixed number of discrete points in time or continuously while constant and continuous pricing have received much attention in the literature problems with a limited number of price changes are rather rare this paper illustrates the benefit of dynamically changing prices to achieve operational efficiency in the eoq model that is to trigger high demand rates when inventories are high we provide structural properties of the optimal time instants when the price should be changed taking into account costs for changes in price it provides numerical guidance on number timing and size of price changes during an order cycle numerical examples show that the benefits of dynamic pricing in an eoq framework can be achieved with only a few price changes and that products being unprofitable under static pricing may become profitable under dynamic pricing

adjustment of consumers durables stocks evidence from automobile purchases this paper tests an optimal s s rule in household durable purchases and examines directly the resulting aggregate expenditure dynamics the observed decision rule responds to income uncertainty and growth as predicted by an s s model resulting from transactions costs tests against liquidity constraints find that about half the households purchase according to an optimal s s rule aggregating the s s rule over households produces a cross section distribution of durables holdings the empirical distribution is similar to that predicted theoretically as is its response to aggregate shocks furthermore simulations of aggregate expenditure based on the household distribution exhibit dynamics consistent with those observed in the 1980s

dynamic pricing in the presence of inventory considerations research overview current practices and future directions the benefits of dynamic pricing methods have long been known in industries such as airlines hotels and electric utilities where the capacity is fixed in the short term and perishable in recent years there has been an increasing adoption of dynamic pricing policies in retail and other industries where the sellers have the ability to store inventory three factors contributed to this phenomenon 1 the increased availability of demand data 2 the ease of changing prices due to new technologies and 3 the availability of decision support tools for analyzing demand data and for dynamic pricing this paper constitutes a review of the literature and current practices in dynamic pricing given its applicability in most markets and its increasing adoption in practice our focus is on dynamic intertemporal pricing in the presence of inventory considerations

unintended impacts of public investments on private decisions the depletion of forested wetlands by affecting relative economic returns infrastructure investments can induce major changes in private land use the authors find that 30 percent of forested wetland depletion in the mississippi valley has resulted from private decisions induced by federal flood control projects despite explicit federal policy to preserve wetlands the model aggregates individual land use decisions using a parametric distribution of unobserved land quality dynamic simulations are used to quantify the impacts on wetlands of federal projects and other factors copyright 1990 by american economic association

dynamic pricing and ordering decisions by a monopolist this paper considers the relationship between pricing and ordering decisions for a monopolistic retailer facing a known demand function where over the inventory cycle the product may exhibit i physical decay or deterioration of inventory called wastage and ii decrease in market value called value drop associated with each unit of inventory on hand the retailer is allowed to continuously vary the selling price of the product over the cycle we introduce a notion of instantaneous margin and use it to derive profit maximizing conditions for the retailer the model explains the markdown of retail goods subject to decay it also provides guidance in determining when price changes during the cycle are worthwhile due to product aging how often such changes should be made and how such changes affect ordering intervals and quantities