Abstract
AbstractThe literature on optimal conversion defines rules that determine the rate at which land is irreversibly moved out of conservation into production. This paper explores the implications on these rules of allowing for a feedback between conversion decisions and the stochasticity of conservation benefits, using the well‐known ecological mechanism of extinction debt as an illustration. This yields a model with a controlled‐diffusion process at its core that is solved using a real‐options approach and that leads to the conventional conversion rule as a special case. Calibrating the model to a specific case (Costa Rica), the paper demonstrates the presence of an augmented quasi‐option value depending on the strength of the feedback. This results in quantifiable changes in land values and the amount of conservation. (© 2008 WILEY‐VCH Verlag GmbH & Co. KGaA, Weinheim)
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