The Economic Value of Biodiversity Preservation

We study the decision to preserve diverse species when the value of biodiversity is uncertain, or even affected by ambiguity. Optimal decisions are derived in a real option framework. We find that while calculated risk creates a scope for biodiversity preservation, the presence of ambiguity reduces it, thus accelerating the extinction of species with lower value. Our results suggests that effective conservation strategies would involve a reduction of ambiguity by creating a stable and transparent policy environment. Furthermore, they may involve a two tier strategy, with one tier addressing output targets and the other conservation targets