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This paper analyzes the optimal policy choice for the conservation of privately owned openspace when future land cover types are uncertain. Policymakers must use land use policies tomake conservation decisions under uncertainty over the social benefits of future vegetation, dueto the uncertain effects of climate change on suitable habitat ranges. If policymakers fail toaccount for future information gains when designing land use policies, expected social welfaremay not be maximized. To examine this situation, I consider three policy instruments: urbangrowth boundaries (UGB), location-independent development fees (LIF), and location-dependentdevelopment fees (LDF). I analyze them in a spatial-dynamic model in which climate change istreated as a land use externality with an uncertain future value. I derive the privately and sociallyoptimal land allocations under open-loop and closed-loop control. By comparing the privatelyand socially optimal land allocations for each control problem, I identify the optimal trajectory ofeach instrument over time. Results depend on whether or not there is a cumulative externalityfrom urban development. When no cumulative externality exists, welfare-maximizing UGB andLIF depend on the control problem. In contrast, LDF are identical in expectation across the twocontrol problems. As a consequence, LDF are the first best policy when landowners do andpolicymakers do not anticipate (or cannot respond to) the future availability of climaticinformation. When a cumulative externality exists, none of the policies are robust to the type ofcontrol problem, including LDF, and only UGB are time consistent. Therefore, UGB are thefirst best policy when policymakers anticipate future climatic information and there is acumulative externality. This work implies that conservation programs should amend currentmethods for ranking conservation choices to account for future ecosystem movement, and returnlands to other uses if climate change causes conservation goals to not be achieved.
Replaced with revised version of paper 07/22/11.
