Canadian Forest Service Publications

A real options-net present value approach to assessing land use change: a case study of afforestation in Canada. 2015. Yemshanov, D.; McCarney, G.R.; Hauer, G.; Luckert, M.K.; Unterschultz, J.; McKenney, D.W. Forest Policy and Economics 50:327-336 p.

Year: 2015

Available from: Great Lakes Forestry Centre

Catalog ID: 35740

Language: English

CFS Availability: PDF (request by e-mail)

Available from the Journal's Web site.
DOI: 10.1016/j.forpol.2014.09.016

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Abstract

Geographically explicit land use change models based on net present value have been criticized for not reflecting the breadth of economic considerations relevant to private land use decisions. An alternative approach is to econometrically estimate land allocations from historical transactions, but this approach requires extensive historical econometric data sets, which may not be available, and may be difficult to model spatially.We show that a geographically explicit net present value approach inclusive of an option value to defer land conversion can be a viable and insightful alternative to econometric approaches. The model is applied to Alberta, Canada where historical land use change data are not available. The elasticity estimates of converting agricultural land to afforestation, 0.21 to 0.37, are similar to other North American estimates from econometric studies.

Plain Language Summary

This paper proposes a new method to predict the land use conversions between agricultural land and forest plantations that is based on real options framework. Previously, geographical land use change models based on net present value concept have been criticized for not reflecting the breadth of economic considerations relevant to private land use decisions. A proposed approach applies real options framework to estimate land conversions between agriculture and forestry and provides a more realistic prediction of the adoption rates for tree planting projects in Canadian conditions. We show that a geographically explicit net present value approach inclusive of an option value to defer land conversion can be a viable and insightful method to predict the future land conversion rates for tree plantation projects, especially in regions where little or no econometric data on historical land use change is available. We applied the model to Alberta, Canada where historical land use change data are not available. The elasticity estimates of converting agricultural land to afforestation, 0.21 to 0.37, are similar to other North American estimates from econometric studies.

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