STRATEGIC ANALYSIS OF FOREST INVESTMENTS USING REAL OPTION: THE FUZZY PAY-OFF MODEL (FPOM)

This paper introduces a fuzzy forestry investment decision-making tool based. It will be applied to choose optimal levels of investment when three possible scenarios are conceived, a base case and two extreme alternatives: optimistic and pessimistic. Decision-makers can be seen as being either owners of a forest or investors. For each of these roles the possibility degrees of the scenarios may be represented by means of fuzzy numbers, representing ambiguous net present values (NPV). Real option values (ROV) are then computed based on them. The application to a potential forestry project in Argentina shows that, while in the case of an owner of forestry project the expected benefits are both positive under NPV and ROV, an investor would discard the project if she assumes equal weights for the scenarios in a traditional analysis but would accept it under the fuzzy approach.