UC Irvine

Using a real options framework in continuous time, we examine two problems associated with the management of exotic pests under uncertainty. First, we analyze the optimal timing of investing in a control action. Given fixed control costs, we obtain a closed-form solution for when to control an exotic pest whose density varies randomly. Second, we define an analytical framework for finding the optimal expenditures for obtaining the relevant bioeconomic data. Our numerical results, based on a wide range of bioeconomic parameters, highlight the importance of accounting for uncertainty and irreversibility when developing simple rules to manage exotic pests. (c) 2004 Elsevier B.V. All rights reserved.