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
Preservation of floodplains is flood protection
27.09.2017 | Technische Universität München
Conservationists are sounding the alarm: parrots much more threatened than assumed
15.09.2017 | Justus-Liebig-Universität Gießen
Salmonellae are dangerous pathogens that enter the body via contaminated food and can cause severe infections. But these bacteria are also known to target...
University of Maryland researchers contribute to historic detection of gravitational waves and light created by event
On August 17, 2017, at 12:41:04 UTC, scientists made the first direct observation of a merger between two neutron stars--the dense, collapsed cores that remain...
Seven new papers describe the first-ever detection of light from a gravitational wave source. The event, caused by two neutron stars colliding and merging together, was dubbed GW170817 because it sent ripples through space-time that reached Earth on 2017 August 17. Around the world, hundreds of excited astronomers mobilized quickly and were able to observe the event using numerous telescopes, providing a wealth of new data.
Previous detections of gravitational waves have all involved the merger of two black holes, a feat that won the 2017 Nobel Prize in Physics earlier this month....
Material defects in end products can quickly result in failures in many areas of industry, and have a massive impact on the safe use of their products. This is why, in the field of quality assurance, intelligent, nondestructive sensor systems play a key role. They allow testing components and parts in a rapid and cost-efficient manner without destroying the actual product or changing its surface. Experts from the Fraunhofer IZFP in Saarbrücken will be presenting two exhibits at the Blechexpo in Stuttgart from 7–10 November 2017 that allow fast, reliable, and automated characterization of materials and detection of defects (Hall 5, Booth 5306).
When quality testing uses time-consuming destructive test methods, it can result in enormous costs due to damaging or destroying the products. And given that...
Using a new cooling technique MPQ scientists succeed at observing collisions in a dense beam of cold and slow dipolar molecules.
How do chemical reactions proceed at extremely low temperatures? The answer requires the investigation of molecular samples that are cold, dense, and slow at...
23.10.2017 | Event News
17.10.2017 | Event News
10.10.2017 | Event News
23.10.2017 | Life Sciences
23.10.2017 | Physics and Astronomy
23.10.2017 | Health and Medicine