TY - JOUR

T1 - How real options and ecological resilience thinking can assist in environmental risk management

AU - Whitten, S.M.

AU - Hertzler, G.

AU - Strunz, Sebastian

PY - 2012/3/1

Y1 - 2012/3/1

N2 - In this paper, we describe how real option techniques and resilience thinking can be integrated to better understand and inform decision-making around environmental risks within complex systems. Resilience thinking offers a promising framework for framing environmental risks posed through the non-linear responses of complex systems to natural and human-induced disturbance pressures. Real options techniques offer the potential to directly model such systems including consideration of the prospect that the passage of time opens new options while closing others. The implications (cost) of risk can be described by option prices that describe the net present values generated by alternative regimes in the resilience construct, and the shadow prices of particular attributes of resilience such as the speed of return from a shock and the distance or time to transition. Examples are provided which illustrate the potential for integrated resilience and real options approaches to contribute to understanding and managing environmental risk

AB - In this paper, we describe how real option techniques and resilience thinking can be integrated to better understand and inform decision-making around environmental risks within complex systems. Resilience thinking offers a promising framework for framing environmental risks posed through the non-linear responses of complex systems to natural and human-induced disturbance pressures. Real options techniques offer the potential to directly model such systems including consideration of the prospect that the passage of time opens new options while closing others. The implications (cost) of risk can be described by option prices that describe the net present values generated by alternative regimes in the resilience construct, and the shadow prices of particular attributes of resilience such as the speed of return from a shock and the distance or time to transition. Examples are provided which illustrate the potential for integrated resilience and real options approaches to contribute to understanding and managing environmental risk

KW - Sustainability sciences, Management & Economics

KW - real options

KW - resilience thinking

KW - risk

KW - thresholds

KW - transitions

KW - Uncertainty

KW - Economics

UR - http://www.scopus.com/inward/record.url?scp=84856843260&partnerID=8YFLogxK

U2 - 10.1080/13669877.2011.634525

DO - 10.1080/13669877.2011.634525

M3 - Journal articles

VL - 15

SP - 331

EP - 346

JO - Journal of Risk Research

JF - Journal of Risk Research

SN - 1366-9877

IS - 3

ER -