Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

Research: 'Modern Portfolio Theory' optimizes conservation practices

16.05.2012
While climate change is likely to alter the spatial distributions of species and habitat types, the nature of those changes is uncertain, making it more difficult for conservationists to implement standard planning models. Research from applied economists at the University of Illinois shows that adapting a theory from the world of finance could help to optimize conservation activities.

Using wetland habitat conservation in the Prairie Pothole Region as a case study, Amy W. Ando and Mindy L. Mallory demonstrated that adapting “Modern Portfolio Theory” for conservation purposes could either maximize the expected returns for a given level of uncertainty or minimize uncertainty for an expected level of return.

“Adapting Modern Portfolio Theory for conservation provides planners with a set of options that can help them reduce outcome variation under climate change,” said Ando, an expert in natural resource and environmental economics.

According to the research, which was published in the Proceedings of the National Academy of Sciences, Modern Portfolio Theory can help planners make strategic conservation investments that manage risk more effectively than simple diversification schemes.

By diversifying strategically across space to reduce future outcome variation for a given level of conservation success, Modern Portfolio Theory allows conservationists to “take advantage of the way these outcome variables co-vary with each other across different scenarios,” said Mallory, an economist whose research focuses on commodity markets, risk modeling and time-series econometrics.

The researchers discovered that employing Modern Portfolio Theory instead of simple diversification in the Prairie Pothole Region – a mosaic of shallow wetlands that serves as a breeding ground for almost 200 species of migratory birds, stretching from Montana to Iowa in the U.S. – can achieve a value of the conservation-objective-per-dollar-spent that is 15 percent higher for the same level of risk.

Modern Portfolio Theory-based portfolios also can have 21 percent less uncertainty over benefits, or 6 percent greater expected benefits, than the current portfolio of Prairie Pothole Region conservation, according to the study.

“In this case, Modern Portfolio Theory shows conservation planners how to choose a portfolio that sacrifices a little bit of your expected conservation benefits but also reduces the uncertainty for your overall outcomes in the future,” Ando said. “So if you don’t like risk, you can reduce it.”

The results of the paper show conservation groups and federal agencies how to cost-effectively divide conservation effort between sub-regions of the Prairie Pothole Region to reduce conservation-outcome uncertainty. There is a trade-off between uncertainty and the expected value of habitat quality, the researchers say. Planners, however, can choose the portfolio that best satisfies their risk preferences given their assumptions about the likelihood of climate change.

“In one climate scenario, you might have one tract of land that yields the best results,” Ando said. “In another climate scenario, the other tract of land might be better. So if you have a little bit of both, you’ve hedged your risk.”

Ando says previous research in the field suggested some approaches to cope with such uncertainty but ultimately didn’t harness all of the benefits of risk diversification.

“When you’re doing this kind of analysis it’s important to pay attention to costs,” she said. “Because if you only focus on the conservation benefits and ignore costs, then you can end up choosing land that might have great benefits but is really expensive. And if you have a limited budget to spend on conservation, then you have a small amount of land that you’re able to buy. So you have high benefits per acre, but you don’t have many acres. If you build costs into the analysis, that enables you to pick a diversified portfolio of lands that have a pretty good ratio of benefits to costs. You can get the most conservation for your budget.

“I think the main contribution of the paper is providing a nice clear demonstration of how you can do portfolio analysis for a spatial land-conservation problem, and what the potential use could be of the results of that kind of analysis.”

The research was supported by the U.S. Department of Agriculture National Institute of Food and Agriculture Hatch Project.

Phil Ciciora | University of Illinois
Further information:
http://www.illinois.edu

More articles from Ecology, The Environment and Conservation:

nachricht Safeguarding sustainability through forest certification mapping
27.06.2017 | International Institute for Applied Systems Analysis (IIASA)

nachricht Dune ecosystem modelling
26.06.2017 | Albert-Ludwigs-Universität Freiburg im Breisgau

All articles from Ecology, The Environment and Conservation >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Can we see monkeys from space? Emerging technologies to map biodiversity

An international team of scientists has proposed a new multi-disciplinary approach in which an array of new technologies will allow us to map biodiversity and the risks that wildlife is facing at the scale of whole landscapes. The findings are published in Nature Ecology and Evolution. This international research is led by the Kunming Institute of Zoology from China, University of East Anglia, University of Leicester and the Leibniz Institute for Zoo and Wildlife Research.

Using a combination of satellite and ground data, the team proposes that it is now possible to map biodiversity with an accuracy that has not been previously...

Im Focus: Climate satellite: Tracking methane with robust laser technology

Heatwaves in the Arctic, longer periods of vegetation in Europe, severe floods in West Africa – starting in 2021, scientists want to explore the emissions of the greenhouse gas methane with the German-French satellite MERLIN. This is made possible by a new robust laser system of the Fraunhofer Institute for Laser Technology ILT in Aachen, which achieves unprecedented measurement accuracy.

Methane is primarily the result of the decomposition of organic matter. The gas has a 25 times greater warming potential than carbon dioxide, but is not as...

Im Focus: How protons move through a fuel cell

Hydrogen is regarded as the energy source of the future: It is produced with solar power and can be used to generate heat and electricity in fuel cells. Empa researchers have now succeeded in decoding the movement of hydrogen ions in crystals – a key step towards more efficient energy conversion in the hydrogen industry of tomorrow.

As charge carriers, electrons and ions play the leading role in electrochemical energy storage devices and converters such as batteries and fuel cells. Proton...

Im Focus: A unique data centre for cosmological simulations

Scientists from the Excellence Cluster Universe at the Ludwig-Maximilians-Universität Munich have establised "Cosmowebportal", a unique data centre for cosmological simulations located at the Leibniz Supercomputing Centre (LRZ) of the Bavarian Academy of Sciences. The complete results of a series of large hydrodynamical cosmological simulations are available, with data volumes typically exceeding several hundred terabytes. Scientists worldwide can interactively explore these complex simulations via a web interface and directly access the results.

With current telescopes, scientists can observe our Universe’s galaxies and galaxy clusters and their distribution along an invisible cosmic web. From the...

Im Focus: Scientists develop molecular thermometer for contactless measurement using infrared light

Temperature measurements possible even on the smallest scale / Molecular ruby for use in material sciences, biology, and medicine

Chemists at Johannes Gutenberg University Mainz (JGU) in cooperation with researchers of the German Federal Institute for Materials Research and Testing (BAM)...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

Event News

Plants are networkers

19.06.2017 | Event News

Digital Survival Training for Executives

13.06.2017 | Event News

Global Learning Council Summit 2017

13.06.2017 | Event News

 
Latest News

Supersensitive through quantum entanglement

28.06.2017 | Physics and Astronomy

X-ray photoelectron spectroscopy under real ambient pressure conditions

28.06.2017 | Physics and Astronomy

Mice provide insight into genetics of autism spectrum disorders

28.06.2017 | Health and Medicine

VideoLinks
B2B-VideoLinks
More VideoLinks >>>