Valuing options for reserve water in the Fitzroy Basin

Abstract

Option values may be an important component of non-use values when development options for environmental assets are considered. These are values that the community might hold for maintaining options to make future choices about allocating resources. However, option values are very difficult to define, at both theoretical and practical levels, and there has been a retreat over the past decade to the more inclusive concept of option prices. In the present paper, estimates of option values are reported for retaining unallocated water in reserve rather than using it for current development. The use of option values rather than option prices is justified on the basis that the focus is on non-use values, and demand and supply uncertainties have been minimised. These values have been assessed through a series of nine choice modelling surveys that have been conducted over a 3-year period in the Fitzroy River Basin in central Queensland. The results are then extrapolated to the case study areas within the basin to assess whether unallocated water should be held in reserve or used for development. © Australian Agricultural and Resource Economics Society Inc. and Blackwell Publishing Ltd 2005.