Financial Options from Regulating Real Estate for Habitat Conservation

Abstract

This article offers an analysis of financial incentives for landowners, conservation bank managers, and land developers under habitat regulations for land use. A financial option theory approach is used with call and put options as contracts for habitat conservation and exchange. The market for habitat is modeled as a stochastic game to derive the option price on habitat that allows for arbitrage between land with and without permission to develop. This analysis applies to a variety of policies including transferable development rights, conservation, and mitigation banking to protect wetland and upland habitat and wildlife.