AERE Reading Group Seminar: Defining, Measuring and Valuing Economic Resilience
The School of Economics Reading Group for Agricultural, Environmental and Resource Economics would like to invite you to a seminar by:
Tim Capon (CSIRO)
Greg Hertzler (University of Western Australia)
This paper presents a new approach to defining, measuring and valuing economic resilience. Building on recent developments in the application of real options analysis to questions of optimal timing, this paper defines economic resilience from the perspective of a decision-maker. Changes in policies, markets or the environment can influence economic resilience by altering the likelihood of a decision maker switching to an alternative economic regime. This paper shows how to measure and value economic resilience in terms of the expected time until a decision-maker reaches a decision threshold between alternative economic regimes. This framework can be used to analyse and evaluate alternative policy levers and support cost-benefit comparisons. Importantly, some undesirable economic regimes may be resilient and cause negative environmental externalities. This paper uses the example of slash-and-burn agriculture causing deforestation in Laos to demonstrate how to compare alternative policy interventions regarding their effect on economic resilience. In general, this new approach has potential applications to problems of technology adoption, development, finance, climate adaptation, and for better understanding the contributions of the resilience of social and ecological systems to the resilience of economic regimes.