These shallow, temporary lakes scattered across the upper Midwest provide critical habitat for migrating birds. (Photo courtesy of US Fish and Wildlife Service) 

Conservation groups have always faced difficult decisions in prioritizing which natural areas to protect. The traditional way has been to place the greatest importance on the rarest, most pristine, or unique places. But in recent years, consideration of costs vs. benefits has entered the discussion.

Now economists Amy Ando and Mindy Mallory of the University of Illinois have introduced modern portfolio theory (MPT)—a tool familiar to the financial industry—to the world of biology and conservation. MPT is a well-established method of diversifying investments to maximize returns, given a certain level of risk.

Currently, conservation groups use sophisticated optimization tools to figure out which areas to protect. But in the face of uncertainty, such as the possible outcomes of climate change, those tools don’t work very well, Ando says.

Ando and Mallory applied MPT to the Prairie Pothole Region, a 64-million-acre expanse of wetlands habitat in the north-central United States that is a breeding ground for more than 200 species of migratory birds. The US Fish and Wildlife Service and organizations such as Ducks Unlimited have purchased land in the region to protect it for waterfowl nesting. And a lot of research has been done to look at how that habitat could be affected by climate change.

The availability of this information made the Prairie Pothole Region a good test case for applying MPT. The best waterfowl habitat, for example, would shift east under certain climate change scenarios. Improvement in one area would mean worse conditions in another.

The researchers modeled various climate change outcomes, such as a warming of 2 degrees Celsius and of 4 degrees Celsius, at different probabilities. Compared with a simple diversification scheme where investments were divided evenly among three subregions, an MPT-based portfolio of landholdings held 15 percent more value per dollar spent for the same level of risk. With MPT, the researchers could also construct portfolios that would produce less risk or greater benefits in the face of climate change.

The simple, evenly divided investment scheme “turns out not to work well,” Ando says. “It’s very inefficient. You are giving up much more expected return than you need to for a given level of risk.”

The information needed for an MPT analysis doesn’t come easily, though. “It’s a new kind of data that conservationists haven’t been collecting historically,” says Jonathan Hoekstra, chief scientist for the World Wildlife Fund. Still, he hopes that the approach will catch on. “This paper shows us a way to be smarter about how we invest our conservation resources to get as much as we possibly can for nature and for society as a whole.”

Amy W. Ando & Mindy L. Mallory, “Optimal Portfolio Design to Reduce Climate-Related Conservation Uncertainty in the Prairie Pothole Region,” Proceedings of the National Academy of Sciences 109, 2012.

Tracker Pixel for Entry