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 option decisions facing the owners of undeveloped land. The size of the easement payment relative to the environmental value of the land, and the social opportunity cost of the tax credit which is provided to easement holders are both important determinants of the efficiency of the easement outcome. Combining the real option decision by the landowner with a social welfare function reveals the conditions under which a landowner will choose to accept a socially undesirable easement and choose to reject a socially desirable easement. A higher level of development value uncertainty raises the value of the real option to defer the land development decision, which in turn decreases both the private and social value of theconservation easement. Simulation results reveal that shifting from a one-time easement to a standing offer easement generates comparatively small gains for the landowner and comparatively large gains for society.

Contact Person: David Hennessy