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Planning for Sea-Level Rise Using Portfolio Theory

By Rebecca Runting

Economics has many ways of dealing with uncertainty. Conservation scientists are incorporating one such approach to designing networks of marine reserves that will perform better as sea level rises.

The full text of this article can be purchased from Informit.

When we think about climate change we often think about how hot or dry it is going to get, but don’t always make the connection to how this will affect all the benefits we get from the natural world, such as food, clothes and opportunities for recreation. Making this connection is crucial if we want to develop effective strategies for climate adaptation. How do we do this given we are often really uncertain about how climate change will affect the benefits we get from nature?

We propose a method for incorporating this uncertainty into our planning. It involves extending a risk-sensitive approach to resource allocation from finance called Modern Portfolio Theory (MPT). The approach was developed by Nobel Prize-winning economist Harry Markowitz. It reduces risk by investing in combinations of financial assets that have negative correlations over future states of the world. We’ve applied this approach to the selection of marine reserves.

MPT has been applied to non-spatial problems in the management of species, populations, and ecosystem services. Some recent studies have also considered spatial planning units as “assets” to allow overall risk to be reduced by allocating conservation investment across space. However, these approaches cannot be directly applied to many planning problems that include discrete site selection, multiple objectives, and a...

The full text of this article can be purchased from Informit.