University:
California State University, Northridge
Course:
ECON 101 | Economics for Everyday Life
Academic year:

2023
Views:

207

Pages:

2
Author:

Jithin J. I.

APPLICATION OF UNCERTAINTY AND IRREVERSIBILITY IN THE VALUATION AND MANAGEMENT OF TROPICAL FORESTS A Framework for Valuation  Tropical forests face significant threats due to conversion into various commercial uses, primarily because the value of preservation often goes unaccounted for in decision-making.  This is due to the fact that the value of preservation may not be realized by those who make decisions about forest use, and because quantifying the value of preservation, a non-market good, can be challenging. Alternative Uses of Tropical Forests 1. Uses Compatible with Preservation:  Sustainable activities like hunting, fishing, gathering of food, and ecotourism.  These activities have minimal disruption to the ecosystem and provide lasting benefits. 2. Intermediate Uses:  Such as agroforestry, selective tree harvesting, and small-scale shifting cultivation.  These activities balance preservation with economic benefits and can be sustainable. 3. Commercial Forestry:  Often unsustainable as it depletes soil nutrients and disrupts the ecosystem.  Provides timber but lacks the long-term ecological benefits of preservation. 4. Commercial Agriculture:  Includes plantations, livestock, and intensive shifting cultivation.  Typically unsustainable due to soil erosion and environmental degradation. 5. Other Large-Scale Extractive Activities:  Examples include mining and water resource development.  These activities can be highly profitable in the short to medium term but are usually unsustainable. A Valuation Framework  Tropical forests can be considered as an asset generating a stream of services over time.  The forest can be viewed as a portfolio of assets, and the sequence of their use matters.  Feasible sequences of use are defined, allowing conversion from a lower numbered use to a higher numbered use. Valuing the Sequence of Uses  Future benefits of each use are uncertain, which is common in benefit/cost analysis.  The expected value of benefits is often used to deal with this uncertainty.  To account for new information over time, we consider the value of preservation, which may change as information becomes available.  By retaining the option to decide on future uses, we acknowledge the value of information conditional on preserving the forest. Option Value and Information  Future information can lead to different and potentially better decisions about forest use.  If we know returns for each use at the start of each period, the value of preservation in the first period can increase.  This highlights the potential value of information and the option to make betterinformed decisions in the future.