Incentives, Risk, and the Role of Private Investments in Louisiana Coastal Wetland Restoration

The coast of Louisiana, with more than three million wetland acres, accounts for about 40 percent of the nations total wetlands. Louisiana is estimated to have lost more than 1.2 million acres of its coastal wetland in the last century. Although 75% of Louisianas coastal wetlands are privately owned, little has been done to encourage private landowners to undertake wetland restoration projects. This dissertation examines the factors that influence the decisions of the landowners to undertake wetland restoration projects. We develop a theoretical framework for understanding the landowners decision-making process in the presence of high uncertainty and increasing restoration costs. The condition under which landowners will invest in wetland restoration and maintenance is derived under the assumptions of risk aversion and relatively high restoration costs. The validity of the theoretical model is tested using data from a mail survey of private wetland landowners in coastal Louisiana that was conducted in Fall of 2009. Two econometric (Tobit and double hurdle) models are estimated to determine the importance of various factors including risk aversion on the probability and the level of private coastal wetland investments.The Likelihood ratio (LR) test shows that the double hurdle model statistically outperforms the Tobit model. The results suggest that the decision to invest in wetland restoration and how much to invest appear to be determined by different processes. The results of the double hurdle model show that risk plays an important role in landowners decisions to invest in wetland restoration and maintenance activities. Landowners who are risk averse make less investment in wetland restoration and maintenance projects than other landowners, and landowners who own properties that are located in risk prone areas are less likely to invest in wetland restoration than other landowners. In addition, the results show that landowners attitudes toward conservation, income related to the property, participation in government wetland programs, ownership structure, and wetland property size are all important determinants of the landowners investment decisions. The analysis emphasizes the need to incorporate risk into the design of wetland incentive programs to encourage private landowners to undertake wetland restoration projects in coastal Louisiana.