Masters Theses

Date of Award


Degree Type


Degree Name

Master of Science


Agricultural and Resource Economics

Major Professor

Seong-Hoon Cho

Committee Members

Paul Armsworth, Charles Sims


This thesis is built with two essays on conservation investment for biodiversity under future uncertainties by using a risk-diversification strategy based on modern portfolio theory (MPT). The first essay is about broad application of MPT in conservation investment allocation, next, the second essay advances the MPT with consideration of the availability of each asset. The purpose of the first essay is to identify optimal conservation investment allocations for target regions and species under uncertain conditions. We develop a two-step approach using MPT to estimate an investment portfolio represented by percentages of conservation investment allocated to counties and taxonomic groups (referred to as ‘portfolio weights’) under climate and market uncertainties. The outcome from each step has a vital implication in its own right. For example, conservation decisions that allow for selecting sites for risk diversification fit the purpose of the first step of our MPT approach. Likewise, conservation investments that benefit biodiversity for particular species for a selected site are made based on the relative importance among species in diversifying risk in that site, fitting the purpose of our MPT second step. The two-step MPT approach as a whole allows the greatest flexibility on where and what to protect for conservation investment under uncertainty, and thus would be applicable for the distribution of general conservation funds without prior motivation to protect either specific sites or species. The second essay is for identifying the consequence of failing to account for the upper bound constraint in MPT framework and to understand the implications of correcting the failure. By comparing MPT outputs with and without upper bound constraints, we infer how the application of MPT without constraints generates misleading recommendations to conservation organizations and identify what may be the implications of correcting them. Consequently, we show that evaluating the impacts of ignoring upper bound constraints is an important task for conservation portfolio development in determining a conservation organization’s ability to safeguard against the risks of climate and market uncertainties. The MPT models in two essays are applied in the central and southern Appalachian region of the United States.

Table A1.pdf (17 kB)
Portfolio weights from naïve MPT and constrained MPTs with $3 million, $50 million, and $1 billion budgets at minimum, 15%, 25%, and maximum risk tolerance levels.

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