Location: 368A Heady Hall
Description: James Vercammen (University of British Columbia)
"A Welfare Analysis of Conservation Easement Tax Credits"
Abstract: Selling land for development and signing a conversation easement are typical joint real optiondecisions facing the owners of undeveloped land. The size of the easement paymentrelative to the environmental value of the land, and the social opportunity cost of the taxcredit which is provided to easement holders are both important determinants of the efficiencyof the easement outcome. Combining the real option decision by the landowner witha social welfare function reveals the conditions under which a landowner will choose to accepta socially undesirable easement and choose to reject a socially desirable easement. Ahigher level of development value uncertainty raises the value of the real option to defer theland development decision, which in turn decreases both the private and social value of theconservation easement. Simulation results reveal that shifting from a one-time easementto a standing offer easement generates comparatively small gains for the landowner andcomparatively large gains for society.
Contact Person: David Hennessy