Adaptation and the option value of uncertain environmental resources

Shogren, J.F. and Crocker, T.D.. 1990. Adaptation and the option value of uncertain environmental resources. Ecol. Econ., 2 : 301-310. Just as ecology has benefited from the economic theory of optimizstion, economics can benefit from the ecological theory of adaptation. We examine the impact of short-term, non-genetic adaptive self-protection on the values individuals attach to uncertain prospective environmental resources. We demonstrate that collective provision of reductions in supply uncertainty does not necessitate a positive option value, given that uncertainty is influenced by the individual’s ability to adapt through self-protection. We conclude that the total value of reducing the supply uncertainty of a natural resource is reflected in both the individual’s option price payments for collective provision and in his willingness-to-pay for adaptation through self-protection. By ignoring adaptive self-protection, traditional benefit-cost analysis has systematically underestimated the total value of environmental resources that are characterized by uncertain supplies.