The results shed light on some of the possible distortions in pricing trade statistics, and potentially explain some hysteresis of trade flows. Irreversibility and Uncertainty in Species Valuation. 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 lumber sales and subsequent ranching.