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The report provides a review of economic approaches to risk and uncertainty, tipping points and resilience. The review is motivated by increasing risk and uncertainty in forestry related to climate change and other factors, and the need to take them into account in making forest planning and management decisions. Ignoring risk and uncertainty could be expected to result in suboptimal choices, inefficient use of resources and poor investments decisions.
An overarching aim of the study is to consider how the tools reviewed could help in valuing resilience in forestry.
Specific objectives for this study are:
The review found that there are currently no universally accepted definitions for risk, uncertainty and resilience, although there is more agreement on defining tipping points or critical thresholds. For the purposes of this study, risk is defined as a measure encompassing the probability and expected impact of uncertain events in the future, with uncertainty conceptualised as a set of probabilities of different potential future states.
Resilience is a comparatively new concept that can be especially difficult to define as it is multidimensional, with potentially rich social content and context. From an ecological perspective, resilience can be deﬁned as the amount of disturbance that an ecosystem can withstand without changing self-organized processes and structures before flipping into a different equilibrium. Tipping points are defined as critical points or zones where relatively rapid change occurs from one stable state to another with a small change in conditions. However, there generally appears to be insufficient evidence at present to identify tipping points in forest ecosystems, and how they will be affected by climate change. Some very preliminary work is reported but much more basic field work and data collection are required.
The review of economic approaches to risk and uncertainty found that a variety of tools are available for modelling, including some novel developments such as robust optimisation. However, there have been relatively few applications in forestry economics to date.
While no simple prescriptive answer can be given to the question of which economic modelling approach to risk and uncertainty should be chosen in each particular case, general recommendations are:
A conceptual framework for the resilience valuation is proposed, while acknowledging the complexity of defining and measuring resilience which are not yet fully resolved. Future work will benefit from linkages with other ongoing research on resilience within Forest Research.
Final project report. Recommended citation: Saraev, V. (2019) Review of economic models for quantifying risk and uncertainty in forestry. Forest Research, Final Report, Edinburgh, UK.