What a Difference a Stochastic Process Makes: Epidemiological-Based Real Options Models of Optimal Treatment of Disease.

Environ Resour Econ (Dordr) 2018 21;70(3):691-711. Epub 2017 Jun 21.

1Department of Plant Sciences, University of Cambridge, Downing Street, Cambridge, CB2 3EA UK.

The real options approach has been used within environmental economics to investigate the impact of uncertainty on the optimal timing of control measures to minimise the impacts of invasive species, including pests and diseases. Previous studies typically model the growth in infected area using geometric Brownian motion (GBM). The advantage of this simple approach is that it allows for closed form solutions. However, such a process does not capture the mechanisms underlying the spread of infection. In particular the GBM assumption does not respect the natural upper boundary of the system, which is determined by the maximum size of the host species, nor the deceleration in the rate of infection as this boundary is approached. We show how the stochastic process describing the growth in infected area can be derived from the characteristics of the spread of infection. If the model used does not appropriately capture uncertainty in infection dynamics, then the excessive delay before treatment implies that the full value of the option to treat is not realised. Indeed, when uncertainty is high or the disease is fast spreading, ignoring the mechanisms of infection spread can lead to control never being deployed. Thus the results presented here have important implications for the way in which the real options approach is applied to determine optimal timing of disease control given uncertainty in future disease progression.

Download full-text PDF

Source
http://dx.doi.org/10.1007/s10640-017-0168-xDOI Listing
http://www.ncbi.nlm.nih.gov/pmc/articles/PMC6435106PMC
June 2017

Publication Analysis

Top Keywords

real options
12
spread infection
8
infected area
8
growth infected
8
optimal timing
8
options approach
8
stochastic process
8
infection
5
infection boundary
4
boundary approached
4
rate infection
4
deceleration rate
4
size host
4
host species
4
species deceleration
4
approach allows
4
approached stochastic
4
characteristics spread
4
infection model
4
derived characteristics
4

References

(Supplied by CrossRef)

E Allen et al.
2007
Article in J Polit Econ
F Black et al.
J Polit Econ 1973
Article in Nature
E Brooks-Pollock et al.
Nature 2014
Article in Vaccine
YH Choi et al.
Vaccine 2010
Article in PLoS Comput Biol
NJ Cunniffe et al.
PLoS Comput Biol 2014
Article in Proc Natl Acad Sci
NJ Cunniffe et al.
Proc Natl Acad Sci 2016

A Dixit et al.
1994
Article in Biocontrol News Inforation
NJ Fielding et al.
Biocontrol News Inforation 1997
Article in Philos Trans R Soc Lond Ser B Biol Sci
CA Gilligan et al.
Philos Trans R Soc Lond Ser B Biol Sci 2008
Article in Annu Rev Phytopathol
CA Gilligan et al.
Annu Rev Phytopathol 2008
Article in J R Soc Interface
CA Gilligan et al.
J R Soc Interface 2007

Similar Publications