Irreversibility, Option Demand and Environmental Preservation

The purpose of this paper is to analyze the government’s choice on whether to preserve or to
construct a hydroelectric dam when there is a willingness to pay for retaining the option to
use the environmental area. Extending the model used by Maler  & Fisher(2005) to explore
the problem of choosing whether to preserve or to develop a tract of land, I show that in the
context of uncertainty about future benefits, the government would choose to preserve the
land when there is an option demand to refrain from using the environmental site.
Cameroon’s government has launched in June 2012, for a value of US $ 840 million, the
construction of a hydroelectric dam in Memve’ele waterfalls in order to boost the electricity
supply. Memvele’ele waterfalls are one of the richest biodiversity areas of the Campo-Ma’an
landscape. The Campo-Ma’an is located in the southwestern corner of Cameroon bordering
to the west by the Atlantic Ocean. The Campo-Ma’an features a National park containing 80
animal mammals such as forest elephants, leopards and gorillas; 302 bird species; 122 reptile
species and 250 fish species. The Campo-Ma’an also contains a coastline of 65 km with
attractive beaches, diverse ethnic groups with different cultural heritage and archaeological

The particularity of Memve’ele waterfalls is that they are very close to the biologically part
of the Campo-Ma’an National Park. The proximity of the Memve’ele hydroelectric dam with
the park is then a great concern. A simulation of the zone of impact of the Memve’ele dam
within a radius of 25 km shows that the park’s richest part in terms of wildlife will be
seriously affected by the dam construction (World Wildlife Fund [WWF], 2008).
When the existence of a grand scenic wonder or a unique and fragile ecosystem, such as
Campo-Ma’an National Park is involved, its preservation and continued availability are
significant part of the real income of many individuals (Krutilla, 1967). In fact, people
anticipate visiting the park at sometime in the future although they never will visit it. If these
people are rational, they will be willing to pay for retaining the option to visit the park in the
future (Weisbrod, 1964). A question can therefore arise: should the Campo-Ma’an National
Park be preserved in its natural state for wilderness recreation or further developed as

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(Author: Etienne Bienvenu Akono.

Published by Macrothink Institute)