CHAMPAIGN, Ill. While climate change is likely to alter the spatial distributions of species and habitat types, the nature of those changes is uncertain, making it more difficult for conservationists to implement standard planning models. Research from applied economists at the University of Illinois shows that adapting a theory from the world of finance could help to optimize conservation activities.
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-do
|Contact: Phil Ciciora|
University of Illinois at Urbana-Champaign