Option and quasi-option value: An approach to deal with climate change effects in coastal areas

Abstract

Conventional economic models facing the assessment of technical solutions to human needs usually focus on Cost and Benefit Analysis as basic instruments. These models typically compute costs of technical intervention, benefits of avoided damages and balance them. A time discounting correction is also included in order to adjust the figures obtained to a more suitable financial reference. When climate change is involved and coastal vulnerabilities are taking into consideration, several weakness of the model emerge due to its lack of capability to capture the overall phenomenon, nevertheless the CBA paradigm appears to be well embedded in public decisions framework and thereof can still be considered as a valid decision framework. In this paper we review the role played by two concepts as option value and quasi-option value as a way to increase the reliability of the figures introduced to estimate the future situation for climate change involved decisions.