Real option pricing in mixed-use development projects

The application of real options theory to commercial real estate has developed rapidly during the last 15 Years. In particular, several pricing models have been applied to value real options embedded in development projects. In this study we use a case study of a mixed use development scheme and identify the major implied and explicit real options available to the developer. We offer the perspective of a real market application by exploring different binomial models and the associated methods of estimating the crucial parameter of volatility. We include simple binomial lattices, quadranomial lattices and demonstrate the sensitivity of the results to the choice of inputs and method.

Governing the clean development mechanism: global rhetoric versus local realities in carbon sequestration projects

Global agreements have proliferated in the past ten years. One of these is the Kyoto Protocol, which contains provisions for emissions reductions by trading carbon through the Clean Development Mechanism (CDM). The CDM is a market-based instrument that allows companies in Annex I countries to offset their greenhouse gas emissions through energy and tree offset projects in the global South. I set out to examine the governance challenges posed by the institutional design of carbon sequestration projects under the CDM. I examine three global narratives associated with the design of CDM forest projects, specifically North – South knowledge politics, green developmentalism, and community participation, and subsequently assess how these narratives match with local practices in two projects in Latin America. Findings suggest that governance problems are operating at multiple levels and that the rhetoric of global carbon actors often asserts these schemes in one light, while the rhetoric of those who are immediately involved locally may be different. I also stress the alarmist’s discourse that blames local people for the problems of environmental change. The case studies illustrate the need for vertical communication and interaction and nested governance arrangements as well as horizontal arrangements. I conclude that the global framing of forests as offsets requires better integration of local relationships to forests and their management and more effective institutions at multiple levels to link the very local to the very large scale when dealing with carbon sequestration in the CDM.

The domestic garden: its contribution to urban green infrastructure

Domestic gardens provide a significant component of urban green infrastructure but their relative contribution to eco-system service provision remains largely un-quantified. ‘Green infrastructure’ itself is often ill-defined, posing problems for planners to ascertain what types of green infrastructure provide greatest benefit and under what circumstances. Within this context the relative merits of gardens are unclear; however, at a time of greater urbanization where private gardens are increasingly seen as a ‘luxury’, it is important to define their role precisely. Hence, the nature of this review is to interpret existing information pertaining to gardens /gardening per se, identify where they may have a unique role to play and to highlight where further research is warranted. The review suggests that there are significant differences in both form and management of domestic gardens which radically influence the benefits. Nevertheless, gardens can play a strong role in improving the environmental impact of the domestic curtilage, e.g. by insulating houses against temperature extremes they can reduce domestic energy use. Gardens also improve localized air cooling, help mitigate flooding and provide a haven for wildlife. Less favourable aspects include contributions of gardens and gardening to greenhouse gas emissions, misuse of fertilizers and pesticides, and introduction of alien plant species. Due to the close proximity to the home and hence accessibility for many, possibly the greatest benefit of the domestic garden is on human health and well-being, but further work is required to define this clearly within the wider context of green infrastructure.

Does regional infrastructure investment stimulate extra housing and commercial building supply? Long-run evidence across the English regions

This paper uses long-term regional construction data to investigate whether increases infrastructure investment in the English regions leads to subsequent rises in housebuilding and new commercial property, using time series modeling. Both physical (roads and harbours) and social infrastructure (education and health) impacts are investigated across nine regions in England. Significant effects for physical infrastructure are found across most regions and, also, some evidence of a social infrastructure effect. The results are not consistent across regions, which may be due to geographical differences and to network and diversionary effects. However, the results do suggest that infrastructure does have some impact but follows differential lag structures. These results provide a test of the hypothesis of the economic benefits of infrastructure investment in an approach that has not been used before.

Real options and game theoretical approaches to real estate development projects: multiple equilibria and the implications of different tie-breaking rules

This paper contributes to a fast growing literature which introduces game theory in the analysis of real option investments in a competitive setting. Specifically, in this paper we focus on the issue of multiple equilibria and on the implications that different equilibrium selections may have for the pricing of real options and for subsequent strategic decisions. We present some theoretical results of the necessary conditions to have multiple equilibria and we show under which conditions different tie-breaking rules result in different economic decisions. We then present a numerical exercise using the in formation set obtained on a real estate development in South London. We find that risk aversion reduces option value and this reduction decreases marginally as negative externalities decrease.

The trees and the bees: using enforcement and income projects to protect forests and rural livelihoods through spatial joint production

Forest managers in developing countries enforce extraction restrictions to limit forest degradation. In response, villagers may displace some of their extraction to other forests, which generates “leakage” of degradation. Managers also implement poverty alleviation projects to compensate for lost resource access or to induce conservation. We develop a model of spatial joint production of bees and fuelwood that is based on forest-compatible projects such as beekeeping in Thailand, Tanzania, and Mexico. We demonstrate that managers can better determine the amount and pattern of degradation by choosing the location of both enforcement and the forest-based activity.