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
Scientists on the road to discovering impact of urban road dust
18.01.2018 | University of Alberta
Gran Chaco: Biodiversity at High Risk
17.01.2018 | Humboldt-Universität zu Berlin
On the way to an intelligent laboratory, physicists from Innsbruck and Vienna present an artificial agent that autonomously designs quantum experiments. In initial experiments, the system has independently (re)discovered experimental techniques that are nowadays standard in modern quantum optical laboratories. This shows how machines could play a more creative role in research in the future.
We carry smartphones in our pockets, the streets are dotted with semi-autonomous cars, but in the research laboratory experiments are still being designed by...
What enables electrons to be transferred swiftly, for example during photosynthesis? An interdisciplinary team of researchers has worked out the details of how...
For the first time, scientists have precisely measured the effective electrical charge of a single molecule in solution. This fundamental insight of an SNSF Professor could also pave the way for future medical diagnostics.
Electrical charge is one of the key properties that allows molecules to interact. Life itself depends on this phenomenon: many biological processes involve...
At the JEC World Composite Show in Paris in March 2018, the Fraunhofer Institute for Laser Technology ILT will be focusing on the latest trends and innovations in laser machining of composites. Among other things, researchers at the booth shared with the Aachen Center for Integrative Lightweight Production (AZL) will demonstrate how lasers can be used for joining, structuring, cutting and drilling composite materials.
No other industry has attracted as much public attention to composite materials as the automotive industry, which along with the aerospace industry is a driver...
Scientists at Tokyo Institute of Technology (Tokyo Tech) and Tohoku University have developed high-quality GFO epitaxial films and systematically investigated their ferroelectric and ferromagnetic properties. They also demonstrated the room-temperature magnetocapacitance effects of these GFO thin films.
Multiferroic materials show magnetically driven ferroelectricity. They are attracting increasing attention because of their fascinating properties such as...
08.01.2018 | Event News
11.12.2017 | Event News
08.12.2017 | Event News
19.01.2018 | Materials Sciences
19.01.2018 | Health and Medicine
19.01.2018 | Physics and Astronomy