A Reply to Option Value of Harvesting Revisited (The Comment)

Abstract

Li's results (1998) are correct and robust. The Comment offers an interesting perspective from real-options theory albeit misguided-from a resource-economics point of view. In particular, the lack of sensitivity in the optimal harvest trigger to biomass uncertainty is questionable. This reply begins with a general overview of resource-economic principles and the role of real options in them. A specific reply to each point raised in The Comment will then be addressed.