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Environmental Economics Seminar: Value of Improved Information about Forest Protection Values, with Application to Rainforest Valuation

Date and Time

Wednesday 04/20/2016 2:30PM to 4:00PM EDT
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Room 4128, William Jefferson Clinton West Building
1301 Constitution Ave., NW
Washington, DC 20001


Contact: Carl Pasurka, 202-566-2275

Presenter: Jon Strand (Development Research Group, Environment and Energy Team, The World Bank)
Sauleh Siddiqui (Department of Civil Engineering, Johns Hopkins University)
(both authors will be at the seminar)

Description: What is the utility from obtaining more precise values of natural resource objects (rainforests), through surveys or other similar information gathering? In the value of information (VOI) problems studied here, a principal (P) who wishes to preserve a resource sets a price to offer to a seller (S) without knowing precisely its protection value, B, nor its opportunity value to S, V. The VOI related to more precise information about B for P is a key issue in environmental and natural resource valuation, but it is in most cases implicit and not analyzed. More precise resource values reduce the frequency of two types of mistakes (saving the resource when it should not; and not saving it when it should), and increases P’s ex ante expected utility value. Applying our model to Amazon rainforest protection and considering the hypothetical value of perfect information (VOPI), we find that VOPI can easily exceed realistic information costs, thus perhaps justifying significant expenditures for valuation studies, given that all available information is used efficiently for conservation decision purposes. VOPI also depends on the nature of buyer-seller interactions, and is higher in the altruistic case, where P has full concern for the outcome for S.