Discounted cash flow analysis, including net present value is an established way to value land use and management investments which accounts for the time-value of money. However, it provides a static view and assumes passive commitment to an investment strategy when real world land use and management investment decisions are characterised by uncertainty, irreversibility, change, and adaptation. Real options analysis has been proposed as a better valuation method under uncertainty and where the opportunity exists to delay investment decisions, pending more information. We briefly review the use of discounted cash flow methods in land use and management and discuss their benefits and limitations. We then provide an overview of real options analysis, describe the main analytical methods, and summarize its application to land use investment decisions. Real options analysis is largely underutilized in evaluating land use decisions, despite uncertainty in policy and economic drivers, the irreversibility and sunk costs involved. New simulation methods offer the potential for overcoming current technical challenges to implementation as demonstrated with a real options simulation model used to evaluate an agricultural land use decision in South Australia. We conclude that considering option values in future policy design will provide a more realistic assessment of landholder investment decision making and provide insights for improved policy performance.
Journal of Environmental Management – Elsevier
Published: Sep 15, 2015
It’s your single place to instantly
discover and read the research
that matters to you.
Enjoy affordable access to
over 12 million articles from more than
10,000 peer-reviewed journals.
All for just $49/month
Read as many articles as you need. Full articles with original layout, charts and figures. Read online, from anywhere.
Keep up with your field with Personalized Recommendations and Follow Journals to get automatic updates.
It’s easy to organize your research with our built-in tools.
Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.
All the latest content is available, no embargo periods.
“Hi guys, I cannot tell you how much I love this resource. Incredible. I really believe you've hit the nail on the head with this site in regards to solving the research-purchase issue.”Daniel C.
“Whoa! It’s like Spotify but for academic articles.”@Phil_Robichaud
“I must say, @deepdyve is a fabulous solution to the independent researcher's problem of #access to #information.”@deepthiw
“My last article couldn't be possible without the platform @deepdyve that makes journal papers cheaper.”@JoseServera
Read and print from thousands of top scholarly journals.
Bookmark this article. You can see your Bookmarks on your DeepDyve Library.