Ecological Economics 120 (2015) 250–259

Contents lists available at ScienceDirect

Ecological Economics

journal homepage: www.elsevier.com/locate/ecolecon

Analysis

Optimizing agricultural land-use portfolios with scarce data—

A non-stochastic model
Thomas Knoke a,⁎, Carola Paul a, Fabian Härtl a, Luz Maria Castro a,b, Baltazar Calvas a,c, Patrick Hildebrandt c
a
Institute of Forest Management, TUM School of Life Sciences Weihenstephan, Department of Ecology and Ecosystem Management, Technische Universität München (TUM), Freising, Germany
b
Departamento de Economía, Universidad Técnica Particular de Loja, Loja, Ecuador
c
Institute of Silviculture, TUM School of Life Sciences Weihenstephan, Department of Ecology and Ecosystem Management, Technische Universität München (TUM), Freising, Germany

a r t i c l e i n f o a b s t r a c t

Article history: The theory of portfolio selection has often been applied to help improve economic decisions about the environ-
Received 16 April 2015 ment. Applying this theory requires information on the covariance of uncertain returns between all combinations
Received in revised form 22 September 2015 of the economic options and also assumes that returns are normally distributed. As it is usually difficult to fulfill
Accepted 29 October 2015
all data requirements and assumptions, this paper proposes a variant of robust portfolio optimization as an alter-
Available online 13 November 2015
native that needs less pre-information. The approach considers future uncertainties in a non-stochastic fashion
Keywords:
through possible deviations from the nominal return of land-use alternatives. Maximizing the economic return
Robust optimization of the land-use portfolio is conditional on meeting an inclusive set of constraints. These demand that a pre-
Risk defined return threshold is achieved by the robust solution for each uncertainty scenario considered. Based on
Portfolio theory data for eight agricultural crops common in the Ecuadorian lowlands, a comparison with portfolios generated
Land use by classical stochastic mean-variance optimization shows greater land-use diversification (through increased
Diversification Shannon indices), but only moderate expected economic loss of non-stochastic robust land-use portfolios. We
Shannon's index conclude that non-stochastic derivation of land-use portfolios is a good alternative to the classical stochastic
model, in situations where information on economic input parameters is scarce.
© 2015 Elsevier B.V. All rights reserved.

1. Introduction There are many other applications of portfolio selection theory in

Modern financial theory is still largely based on the famous results
that follow from Markowitz's (1952, 2010) theory of portfolio selection.
The theory of portfolio selection is used to analyze and improve decision
making in natural resources and the environment, for issues such as bio-
diversity conservation, forestry, grassland and fisheries management,
and land allocation. Examples include analyzing common agricultural
policy, conservation payments, irrigation, flood management, and opti-
mization. For instance, Figge (2004) applied portfolio theory to develop
a concept for valuing the benefits of biodiversity. In a marine case study
on biological conservation, Halpern et al. (2011) adopted portfolio se-
lection theory to analyze the impact of spatial variance in returns from
natural resources on the equitable delivery of value to individuals and
communities. Koellner and Schmitz (2006) contributed an application
of the portfolio theory in grassland science using the reward-to-
variability ratio for optimization (cf. Sharpe, 1994). There are also vari-
ous applications of the portfolio theory in forest science; Hildebrandt
and Knoke (2011) provide an overview on forest investment decisions
under uncertainty, including applications of portfolio theory.
⁎ Corresponding author at: TUM School of Life Sciences Weihenstephan, Technische
Universität München, Hans-Carl-von-Carlowitz-Platz 2, 85354 Freising, Germany.
E-mail address: knoke@forst.wzw.tum.de (T. Knoke).
fishery science. For example, Griffiths et al. (2014) recently concluded
that portfolio theory provides a straightforward method for characteriz-
ing the resilience of salmon ecosystems and their services. Moore et al.
(2010) also used economic portfolio theory to simulate the impact of
synchronization of salmon populations on the risk-adjusted perfor-
mance of fish portfolios. Sanchirico et al. (2008) employed a portfolio
framework to consider variance and covariance in gross fishing reve-
nues when setting total allowable catch for individual species. Another
example is the work of Edwards et al. (2004), who systematically com-
bined various fish stocks into a portfolio that balances expected aggre-
gate returns against risks. In an earlier study, Larkin et al. (2003)
maximized unit returns for various pre-defined risk levels to show
that the actual composition of fish resources is not part of the efficient
portfolios (that is, portfolios that achieve maximum economic return
for pre-defined risk levels).
This paper deals with the important problem of allocating scarce land
to various land-use options, which has also been supported by portfolio
theory in various studies. Land allocation is among the world's most
pressing environmental issues, as confirmed by Wise et al. (2009).
They conclude that allocating scarce land resources to competing ends,
for instance, to balance climate protection and food production, will re-
main a major challenge of the 21st century. The allocation of land has
long been studied in land-use economics, beginning with von Thünen's

http://dx.doi.org/10.1016/j.ecolecon.2015.10.021
0921-8009/© 2015 Elsevier B.V. All rights reserved.
 T. Knoke et al. / Ecological Economics 120 (2015) 250–259
(1842) seminal work on distributing land-use options based on their
land rent (see Samuelson, 1983, for an extensive review of Thünen's
work). At present, Thünen's theory is applied in several international
studies (e.g., Angelsen, 2010; Phelps et al., 2013). Macmillan (1992)
has proposed an extension of the Thünen land rent model based on port-
folio theory. Many studies have applied the classical land rent theory
combined with portfolio selection theory. Roche and McQuinn (2004)
and Havlik et al. (2008) used a portfolio theory framework to analyze
the consequences of the Common Agricultural Policy in the European
Union. Abson et al. (2013) linked landscape diversity and the resilience
of agricultural returns, while Kaplan (1985) optimized the structural
composition of farmlands. In other land-use studies, portfolio selection
theory has been used to derive conservation payments (Benitez et al.,
2006; Castro et al., 2013). Water management and scarcity issues have
increasingly been studied using the theory of portfolio selection. For ex-
ample, afforestation on marginal land in irrigated farming systems has
been investigated (Djanibekov and Khamzina, 2014) as well as improved
irrigation water management in uncertain conditions (Paydar and
Qureshi, 2012). A further development of flood management (Aerts
et al., 2008) and water planning (Marioni et al., 2011) represent other
environmental studies based on portfolio selection theory.
While many studies in environmental and resource economics rely
on the classical and prestigious theory of portfolio selection, this theory
has some disadvantages. In Markowitz's (1952) model, the economic
return is the expected value of a random portfolio return, where the as-
sociated risk is quantified by the variance of the return (Goldfarb and
Iyengar, 2003). The theory of portfolio selection is thus based on using
a stochastic model, and the associated mathematics to combine covari-
ances of economic returns assume that these returns are normally dis-
tributed. However, in real applications, it is hard to obtain the actual
distribution of returns (Yu and Jin, 2012) because historical data are
often limited. To overcome the problem of missing data, simulation
techniques such as Monte Carlo Simulation have been used, but these
methods are data-demanding and often show that returns are not nor-
mally distributed (e.g., Knoke and Wurm, 2006).
The stability of estimates for covariances is another problem. Robust
and reliable information on covariance that will also hold true for future
developments of market and biophysical risks is almost impossible to
obtain. Also, practitioners often abstain from using the results from
portfolio optimizations because these results can be very sensitive to
small perturbations in the input parameters of the problem (e.g.,
Goldfarb and Iyengar, 2003). Given these complications, alternative ap-
proaches that can still provide good results without this information on
covariance could be advantageous.
To solve these problems, alternative programming techniques have
been proposed to optimize portfolio composition (e.g., Bertsimas and
Sim, 2004). These include non-stochastic convex programming that guar-
antees exact solutions, should those exist. This may be accomplished, for
example, using linear programming (Ben-Tal and Nemirovski, 2000).
Uncertainty can be included by using constraints that reflect plausible
margins for possible parameter perturbations to achieve a robust optimi-
zation. Robust optimization, as defined here, searches for an acceptable
result for all parameter perturbations considered.
Techniques that can produce robust results also exist in stochastic
optimization, such as maximizing the value at risk as a variant of
worst-case optimization (see Härtl et al., 2013, for an example in forest
planning). However, in contrast to stochastic optimization, non-
stochastic robust optimization weights all data perturbations equally
and does not assign different probabilities, for instance, to different re-
turn deviations. Non-stochastic robust optimization also needs at least
some specification of possible input data variations. However, the as-
sumptions about data variation are not necessarily as detailed as those
needed in stochastic mean-variance optimization. Thus, non-
stochastic optimization may be less data-demanding than a classical
portfolio optimization. Given this background, this method could be a
good alternative to the existing economic land-use models based on
251
classical portfolio selection theory, in cases where economic informa-
tion about uncertainties is scarce.
A recent literature review on robust optimization shows that this tech-
nique is still popular and that its application is increasing (Gabrel et al.,
2014). However, robust optimization has rarely been applied to problems
in environmental and resource economics. One exception is the work of
Palma and Nelson (2009), who apply robust optimization in forest re-
source management. However, this study does not analyze a portfolio-
based problem of land allocation. Applying robust portfolio optimization
to analyze the economics of land-use diversification is actually very rare.
It will therefore be interesting to compare portfolio compositions
achieved with a robust, non-stochastic optimization technique to those
obtained by classical mean-variance optimization. A recent study on the
economic attractiveness of producing organic bananas in Ecuador
(Castro et al., 2015) will provide the data for such a comparison. The anal-
ysis will include economic aspects and the resulting degree of land-use di-
versification. Shannon's index for the various land-use portfolios can be
used to compare differences in landscape diversity (Nagendra, 2002).
Successfully applying non-stochastic optimization to land-use allocation
problems could reduce data requirements, while resulting in meaningful
land-use portfolios that may be more stable across changing assumptions
about uncertainty. Such improvements in the modeling technique could
increase the application of land-allocation models that can address uncer-
tainties, while helping to adjust models to different spatial scales and en-
vironmental conditions. These models are an important tool for designing
cost-effective land-use and environmental policies under the increasing
uncertainty of future food markets and climate conditions (Knoke et al.,
2013). The following questions will therefore be addressed: (i) How do
land-use portfolios derived using robust optimizations differ from those
that are classically derived by mean-variance optimization? (ii) How
does the method of portfolio optimization influence the Shannon
index? (iii) How do robust land-use portfolios perform in a mean-
variance context?
2. Methods and Materials
2.1. Optimization Approaches
2.1.1. A Stochastic and a Non-stochastic Model
Classical portfolio optimization derives an efficient frontier formed
by portfolios that maximize the economic returns for pre-defined levels
of economic uncertainty. The efficient frontier is based on “mean-vari-
ance” optimization. The standard deviation of the economic return is
usually adopted as a measure for uncertainty. Using this theory for an
optimized allocation of land to different land-use options in a Thünen
framework (which is not spatially explicit in our examples), we formu-
late the optimization problem as in Eq. (1):
X
max EðY L Þ ¼ Eðyi Þai
i∈L
subject to
SL ≤ Ss
A ffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
XX
SL ¼ ai a j covi; j ð1Þ
X
i∈L j∈L
ai ¼1
i∈L
covi; j ¼ ki; j si s j
ai ≥ 0
where
E(YL) Expected land rent of the entire land-use portfolio (economic
portfolio return in US$ ha−1 year−1)
E(yi) expected land rent (referred to as economic return throughout
the paper) of a single land-use option, i (US$ ha−1 year−1)
ai area proportion allocated to the land-use option i
252 T. Knoke et al. / Ecological Economics 120 (2015) 250–259
L set of land-use options considered
SL standard deviation of the uncertain land-use portfolio return
SA pre-defined standard deviation of the uncertain portfolio
return
covi,j covariance of uncertain returns of land-use options i and j
ki,j correlation coefficient of uncertain returns of land-use op-
tions i and j
si standard deviation of the return of land-use option i
In Eq. (1), uncertainty is considered by means of the portfolio's stan-
dard deviation, SL, controlled via a constraint. This uncertainty depends
on the allocation of land proportions to land-use options and on the eco-
nomic return covariances between each possible pair of land-use op-
tions. The frontier of efficient portfolios is progressively derived in a
process that initially requires SA (acceptable level of uncertainty) to be
at a minimum. Increasingly higher uncertainty levels are then allowed
while maximizing the economic return for each level of uncertainty an-
alyzed, until finally the maximum uncertainty is achieved with a portfo-
lio consisting of the single land-use option with the greatest uncertainty
(and usually the highest economic return as well). The formulation in
Eq. (1) is stochastic because the economic returns of the land-use op-
tions are considered to be the expected values of random variables
and have a standard deviation and specific covariance with the returns
of all other land-use options.
The formulation of the non-stochastic optimization problem is pro-
posed as follows (Eq. (2)):
X Rearranging the constraint to be fulfilled for each scenario in Eq. (2)
max Y L ¼ yi ai
i∈L
subject to
X
ysi  ai ≥ maxðysi Þ−βU  δ max; min ∀s∈ S
i∈L
ysi ¼ yi  usi ð2Þ
0 ≤ βU ≤ 1
X
ai ¼1
i∈L
ai ≥ 0
where
yi nominal economic return of land-use option i
ai area proportion allocated to the land-use option i
ysi possible return of land-use option i after subtracting or
adding the deviation considered, usi
s specific uncertainty scenario constructed by various combi-
nations of deviations usi, for each yi from a given set of land-
use options, L
max(ysi) maximum return among land-use options for scenario s
βU control factor to adjust the degree to which the constraint has
to be relaxed. Through calibration, a minimum of βU is
searched for under which all uncertainty scenarios meet
their constraint. βU depends on the level of uncertainty, U,
which is considered according to Eq. (5) or Eq. (6)
U is introduced to indicate that β depends on the size of the un-
certainties considered
δmax,min maximum range of economic returns within scenario s,
max(ysi) − min(ysi)
S set of all uncertainty scenarios
usi possible maximal deviation from the initial return parameter,
yi, see Eqs. (5) and (6) for definition
The non-stochastic problem formulation also addresses uncertainty
via constraints. The uncertainty is represented by discrete and pre-
defined pessimistic and optimistic return scenarios (see below); for
each scenario, a certain level of economic return must be guaranteed.
Such an expression of the uncertainty problem has been called a pure
“constraint-wise” construction of a robust optimization problem (Ben-
Tal et al., 2009, p. 11). Thus, Eq. (2) implies the simultaneous consider-
ation of all uncertainty scenarios. However, it is not possible to always
maximize the economic return for each uncertainty scenario with one
land-use allocation only. When returns from individual crop alterna-
tives vary between uncertainty scenarios, different land-use options
may deliver the maximum economic return, depending on the uncer-
tainty scenario considered. Therefore, the constraint to be fulfilled for
each scenario in Eq. (2) cannot be strict; instead, it must be relaxed
enough to obtain feasible solutions. To achieve this, we introduce a “re-
laxed” global constraint into our model. Here, the maximum return re-
quired in the strict version of the constraint is reduced by the product of
a control factor, βU, and the range between the maximum and minimum
returns for each scenario, δmax, min. The reasoning behind this adjust-
ment is as follows: the difference between the maximum and minimum
returns shows the maximum return range which occurs in a scenario, s.
If the control factor βU is set to zero, the constraint reverts to its strict
version, requiring the highest return possible for each uncertainty sce-
nario. If βU, however, is set to one, we only demand the minimum return
for each uncertainty scenario. This would be possible with any land-use
allocation and would result in a strong “underperformance” of our land-
use portfolio. Therefore, the lowest βU that avoids violating any con-
straint must be found. It will be greater than zero but less than one.
2.1.2. A Closer Look at the Control Factor, βU
shows that βU limits the distance to be tolerated between the maximum
achievable return, max(ysi), and the return actually achieved by the
land-use portfolio (Eq. (3)):
X
maxðysi Þ− ysi  ai
i∈L
βU ≥ ð3Þ
δ max; min
This distance is scaled between zero (minimum return) and one
(maximum return) and results a new variable, dists, for a certain alloca-
tion of land proportions to land-use options, for each uncertainty sce-
nario, s. An alternative way to represent the problem would be to
optimize over dists directly (Eq. (4)). Here the variable dists (which is
the maximum distance to be tolerated between the highest achievable
return, max(ysi), and the return actually achieved) is the new objective
function to be minimized:
min dists
s∈S
subject to X
maxðysi Þ− ysi  ai
i∈L
dists ¼
δ max; min ð4Þ
ysi ¼ yi  usi
X
ai ¼1
i∈L
ai ≥ 0
The optimized variable dists shows, in relative units, how much of the
maximum return range (maximum minus minimum return) is not
achieved in the worst-case. Conversely, 1-dists tells us how much of
the maximum return range is guaranteed for each uncertainty scenario.
For example, a final minimized dists of 0.62 means that 38% of the return
range is guaranteed for each scenario. The guaranteed economic return is
then formed by summing the minimum return and 38% of the maximum
return range (achieving 100% of the return range would give the maxi-
mum return).
This problem formulation results in the same allocation of land pro-
portions compared to Eq. (2), which confirms that Eq. (2) also minimizes
 T. Knoke et al. / Ecological Economics 120 (2015) 250–259 253

non-achievement of the desired highest returns. This underlines the ap-

propriateness of Eq. (2) for portfolio optimization as an approach that
gives equal importance to all uncertainty scenarios, to minimize the
maximum distance to the highest achievable return, even under adverse
uncertainty scenarios (“minimized non-achievement”).
Eq. (4) resembles the objective function in a variant of the multiple
objective goal programming (Tamiz et al., 1998), where non-
achievement of multiple goals is minimized. We may thus conclude
that our optimization under uncertainty is theoretically equivalent to
a seldom used (Romero, 2001) but well-described goal programming
version. However, our approach does not consider specific weights for
the multiple scenarios (which represent our multiple objectives).
Romero (2001) has characterized this goal programming formulation
as looking for “equity,” when considering multiple objectives, in con-
trast to more common approaches looking for “efficiency.”
Finally, we still used Eq. (2) for our optimization because Eq. (4) is
not smooth (Tamiz et al., 1998) and therefore cannot be solved by
using convex optimization.

2.1.3. Uncertainty Sets

We consider uncertainty deviations usi that are specific for the return
of each land-use option i. The various uncertainty scenarios s may be
formed by generating all possible combinations of pessimistic (usi b 0)
and optimistic deviations (usi N 0) while also considering combinations
with the nominal parameters (usi = 0). To represent all scenarios, we
could therefore potentially consider, through constraints, 3n sets of pa-
rameter combinations in Eq. (2), where n is the number of land-use op-
tions included. However, considering only pessimistic and optimistic
return scenarios is sufficient, which reduces the number of constraints
considered in Eq. (2) to 2n. One could also consider only the negative de-
viations from the nominal returns (that is, replace the optimistic eco-
nomic returns with the nominal returns), and obtain similar results to
those achieved when considering optimistic margins (an example is in-
cluded in Fig. 5). However, this variant would not reduce the number of
scenarios considered.
Our actual uncertainty sets consist of all 2n uncertainty scenarios
(Bertsimas and Brown, 2009) for each level of uncertainty investigated.
The deviations considered for the nominal return parameters form
boxes, illustrated in Fig. 1 for the combined uncertainties of two land-
use options only (while n-dimensional uncertainty spaces were used
for the actual optimization). Combining the uncertainty deviations for
both options forms four scenarios (22) in this simplified example: pessi-
mistic–pessimistic, pessimistic–optimistic, optimistic–optimistic, and
optimistic–pessimistic. These scenarios represent the corner points of
the box-uncertainty sets. The size of the uncertainty sets has been en-
larged from 0.5 to 3 times a scale factor Di, where Di is used to distin-
guish between individual uncertainties of certain land-use options.
Thus, the uncertainty sets become increasingly inclusive to study the ef-
fect of increased/decreased uncertainty.
It is not necessary to consider all the intermediate return combina-
tions included by the boxes. When the optimum solution for the corner
points of the boxes is found, the non-violation of the constraint function
in Eq. (2) for any combination of input parameters included by the
boxes is guaranteed. Finally, results reported for some of the analyses
in this paper were derived using more scenarios (3n), including the
nominal returns and their combinations with optimistic and pessimistic
returns. This was done to produce artificial return distributions which
resemble frequency distributions. These distributions are not used for
probabilistic analyses but instead to demonstrate some consequences
of the various portfolio compositions derived.
While we decided to use boxes to represent the uncertainties con-
sidered, alternative shapes of possible uncertainty sets could be, for ex-
ample, conic or polyhedral. These alternatives, however, require more
assumptions about the correlations in the uncertain data than the
box-uncertainty spaces applied in our study. Besides the shape of the
uncertainty set, the size of it, expressed by usi, must also be considered.
Fig. 1. Schematic to demonstrate the derivation of the uncertainty scenarios for two hypo-
thetical land-use options. Uncertainty deviations of different size, usi, have been subtracted
from/added to the nominal return values of both land-use options (Di: scale parameter to
account for differences in uncertainties between land-use options).
This paper uses various uncertainty levels, U, to derive usi, and distin-
guishes between two methods of deriving the size of the deviations.
Both variants consider different levels of pre-information. The first var-
iant, Eq. (5) (herein referred to as “individual uncertainties known”),
calculates usi as a multiple, m, of the individual standard deviation of
the return for each land-use option, si. Here the standard deviation is
considered as a measure of the individual return uncertainty. This
does not mean that we assume a normal distribution in our model.
We simply use multiples of the standard deviation as a proxy to quantify
the maximum deviations to be considered, regardless of the distribution
behind these returns. Using si for this purpose helps us to account for
different deviations for crops that we consider, which are either more
or less affected by uncertainty than most other crops. Decision makers
could also subjectively determine the crops for which they assume larg-
er or smaller maximum deviations.
usi ¼ m  si ðmj1:0; 1:1; 1:2; :::; 2:8; 2:9; 3:0Þ ð5Þ
For example, m = 2 means that the nominal return of one land-use
option ±2 times its standard deviation forms optimistic/pessimistic re-
turn scenarios.
However, the individual standard deviation may not always be avail-
able to quantify the uncertainty of economic return for single land-use op-
tions. Consequently, a second variant, Eq. (6) (herein referred to as
“individual uncertainties unknown”), is tested that only requires informa-
tion on the expected, nominal economic return for each crop. This variant
computes usi as a multiple, mi, of the nominal return parameter, yi.
usi ¼ mi  yi
subject to :
dr ð6Þ
mi ¼ m min þ  Δi; min ðm min j0:5; 0:6; 0:7 :::; 1:8; 1:9; 2:0Þ
Δ max; min
mmin multiple used to determine the maximum deviation for the
crop with the minimum return
dr assumed difference in relative uncertainty between crop with
maximum and crop with minimum relative uncertainty
254 T. Knoke et al. / Ecological Economics 120 (2015) 250–259
Δmax,min difference between the maximum and minimum nominal
returns
Δi,min difference between the nominal return of option, i, and the
nominal minimum return
The multiple, mi, is the maximum relative deviation expected for
each nominal return parameter. For example, mi = 1 means a maxi-
mum positive or negative deviation of 100% from the nominal return
parameter. The pessimistic return is then zero and the optimistic return
is 2 times the nominal return. One may use the same relative deviation
(mi = m = constant) for each nominal return parameter, or different
relative deviations for each land-use option, i, with ±mi · yi. In our ex-
ample, we increased the relative deviation in proportion to the increas-
ing nominal return value, so that the crop with the greatest nominal
return is provided with a multiple, mi, which is higher than that used
for the crop with the minimum return by the factor dr (see Eq. (6)).
Under a maximum range in relative uncertainty between all crops of
dr = 0.1, mi is 1.1 for the crop with the highest return, if mi is 1 for the
crop with the minimum return. Crops with returns between the mini-
mum and maximum will have 1 b mi b 1.1, for this example. Assuming
that relative uncertainty increases with increasing return is realistic, be-
cause there is a well-known, positive correlation between return and
uncertainty. Our approach uses a dr of 0.1 for the basic analyses. Howev-
er, to study the impact of this assumption, we carried out sensitivity
studies using no increase of the relative uncertainty for the more profit-
able crops (dr = 0) and an increase of the multiple mi by up to 0.15
(dr = 0.15) and 0.30 (dr = 0.30) for the most profitable crop.
To summarize, both methods of considering uncertainty deviations
do not require any quantification of return covariances, which is an
often difficult to achieve requirement of the common stochastic
model. Box uncertainties are used because they do not need any speci-
fication of return distributions and consider all possible return correla-
tions implicitly (via the corner points of the boxes). In the simplest
form, uncertainties are derived only by computing multiples of the
nominal return parameters (the only information needed for variant
“individual uncertainties unknown”). In contrast, considering uncer-
tainties in the stochastic model, for example, simulated using the
Monte Carlo technique, would need information on the distribution of
productivities, market prices, and harvesting costs, plus the correlations
between these inputs for all crops considered. Thus, classical stochastic
optimization of portfolios is much more data demanding than using our
approach based on box-uncertainty sets.
2.1.4. Benchmark Portfolios
After forming the robust land-use portfolios (Eq. (2)) with each of
the two variants (using Eqs. (5) and (6)), benchmark land-use portfoli-
os were also derived using the classical mean-variance approach (using
Eq. (1) and the data shown in Tables 1 and 2). To achieve comparable
conditions, the classical portfolios were formed by maximizing the
Table 1
Possible deviations, ±usi, for each land-use option from the nominal economic returns calculated using two alternative methods (1) as multiples of the standard deviation, see Eq. (5)
(variant “individual uncertainties known”) or (2) as multiples of the nominal parameter value, see Eq. (6) (variant “individual uncertainties unknown”) (economic data adopted from
Castro et al., 2015, with alterations).
Land-use option (i) Assumed economic (net) returns and possible levels of deviation (±usi) in US$ ha−1 year−1
Deviations: variant “individual uncertainties
known,” ± usi, as multiples of the si
Conventional banana ±2835, ±2741, …, ±1040, ±945
Organic banana ±1512, ±1462, …, ±554, ±504
Cocoa ±210, ±203, …, ±77, ±70
Maize ±324, ±313, …, ±119, ±108
Rice ±303, ±293, …, ±111, ±101
Soybean ±156, ±151, …, ±57, ±52
Balsa ±252, ±244, …, ±92, ±84
Laurel ±210, ±203, …, ±77, ±70
economic return for the standard deviation that was found using the
shares of the land-use options obtained for the robust, non-stochastic
portfolios. Thus, for this comparison, we assume that the nominal pa-
rameters used for mean-variance modeling are actually the true param-
eters. This of course is only an assumption to make it possible to analyze
how great the potential economic losses could be when using the robust
non-stochastic modeling approach.
2.1.5. Landscape Diversity
Finally, the indicator for the landscape diversity of the resulting port-
folios was compared. This comparison was based on Shannon's index
(Shannon, 1948) (represented by HL in Eq. (7)), which is computed
for each of the land-use portfolios, with ai being the proportion of land
allocated to each land-use option in a given portfolio:
X
HL ¼ − ai ln ai ð7Þ
i∈L
2.2. Data
This paper builds on data recently published by Castro et al. (2015),
who used the classical theory of portfolio selection to derive land-use
portfolios for the Ecuadorian lowlands, which considered (among
other crops) conventional and organic banana as alternatives. The
study area from which the economic data has been compiled is the
Babahoyo sub-basin—a flat floodplain cross-cut by many rivers and lo-
cated in the littoral region of Ecuador. Soils there are mainly alluvial
sandy clays of volcanic origin with variable textures. The land-use op-
tions considered were banana (conventional and organic), cocoa, rice,
maize, soybean, and two tree species—balsa and laurel. The economic
data published by Castro et al. (2015) were used in the current study
both as nominal input parameters and to construct the uncertainty de-
viations from the economic returns used to consider possible uncer-
tainties (Table 1). The uncertainty margins formed as multiples of the
nominal values according to variant “individual uncertainties un-
known” (Eq. (6)) were more inclusive than those resulting from variant
“individual uncertainties known” (Eq. (5)) (Table 1). This is meaningful
because only very little information is used under this variant, which
suggests it bears greater uncertainties than the “individual uncertainties
known” variant.
Computing all possible combinations of the resulting economic
returns (considering nominal returns as well as positive and negative
deviations) for each of the eight crops resulted in 38 = 6561 scenarios
for each level of deviation (usi) considered. As already mentioned, this
large number of scenarios is not used for optimization, but to form dis-
tributions of economic returns that resemble frequency distributions
(but are actually only frequency-like distributions). An example distri-
bution is provided in Fig. 2, which shows all possible economic returns
Nominal values (no deviation) Deviations: variant “individual uncertainties Standard deviation, si
unknown,” ± usi, as multiples of the nominal
parameter value
1786 ±3751, ±3572, …, ±1116, ±1072 945
1040 ±2136, ±2032, …, ±602, ±576 504
159 ±318 ± 302, …, ±83, ±80 70
247 ±495, ±471, …, ±131, ±125 108
486 ±982, ±933, …, ±265, ±253 101
174 ±348, ±331, …, ±92, ±87 52
271 ±544, ±517, …, ±144, ±137 84
154 ±308, ±293, …, ±81, ±77 70
 T. Knoke et al. / Ecological Economics 120 (2015) 250–259
Table 2
Correlation coefficients used to compute classical mean-variance portfolios according to Eq. (1) (adopted from Castro et al., 2015).
Banana conventional Banana organic
Banana conventional 1.00
Banana organic 0.02 1.00
Cocoa −0.01 −0.03
Maize −0.06 −0.01
Rice 0.02 −0.03
Soybean 0.03 −0.01
Balsa 0.04 0.02
Laurel 0.01 0.02
from a naive land-use portfolio in which a share of 1/8 of the land area is
allocated to each crop, and uncertainty bounds of ±0.7 times the nom-
inal parameter value for economic returns are assumed. When using
these distributions, it should always be kept in mind that they are arti-
ficial constructions, even if they look almost “normal.” Because they do
not result from empirical data, probabilistic interpretation is not
advisable.
As previously stated, the final optimization is based only on the op-
timistic and pessimistic deviations, thus reducing the number of scenar-
ios to 28 = 256. Nevertheless, this reduced number of scenarios resulted
in the same land allocation as that derived using all 6561 scenarios.
3. Results and Discussion
3.1. Land-use Portfolios in a Stochastic Mean-variance Context
The analysis in this paper uses “classical” land-use portfolios as refer-
ence, derived from land rent for an Ecuadorian agricultural landscape,
which Castro et al. (2015) computed using mean-variance optimization
as per Markowitz, according to Eq. (1). The degree of diversification of
land-use portfolios decreases as the level of accepted economic risk/un-
certainty rises (Fig. 3).
Organic banana is an important part of the resulting land-use portfo-
lios over a large range of uncertainty levels. The next step is to test
whether robust land-use portfolios that are derived according to
Eq. (2), will also be diversified, and if so, how strong the diversification
is compared to the classical land-use portfolios displayed in Fig. 3.
3.2. Land-use Portfolios in a Non-stochastic Context of Robust Modeling
The non-stochastic optimization approach also yields diversified
land-use portfolios. This is because when considering uncertainty, the
rank order of economic returns from land-use options may change de-
pending on the size and direction of the possible uncertainty deviations
(usi) considered. For example, the high yielding crop conventional ba-
nana does not show the highest economic return in each scenario.
Fig. 2. Sample artificial distribution of economic returns for a naive land-use portfolio in
which 1/8 of the land area is allocated to each land-use option and uncertainty bounds
are considered as deviations usi of ±0.7 times the nominal economic return parameters
according to Eq. (6).
255
Cocoa Maize Rice Soybean Balsa Laurel
1.00
−0.02 1.00
0.43 0.02 1.00
0.36 0.01 0.59 1.00
−0.02 0.02 −0.02 0.00 1.00
0.03 −0.01 −0.02 −0.02 0.08 1.00
Negative deviations for conventional banana may lead to superior eco-
nomic returns from other crops that show either no or only positive de-
viations from the nominal return. The non-stochastic model seeks a
compromise land-use allocation that allows acceptable performance
for all uncertainty scenarios. Considering downward or upward biased
uncertainty sets have different effects. Including only downward devia-
tions (pessimistic scenarios), while assuming nominal returns as the
maximum to be achieved, results almost the same land allocation com-
pared to considering balanced deviations. However, considering up-
ward deviation only (optimistic scenarios) leads to no or almost no
diversification, because protection against poor performance is not nec-
essary under such assumption.
Despite the similarities for diversification, the land-use portfolios
resulting from non-stochastic modeling (Fig. 4) are not the same as
those derived from stochastic mean-variance modeling. When the uncer-
tainty margins are estimated as multiples of the standard deviation of
economic returns (variant “individual uncertainties known”, Eq. (5)), al-
most constant portfolio compositions are obtained under large and inclu-
sive maximum deviations that range from 3 to just under 2 times the
standard deviations of the economic returns (Fig. 4A). For these portfolios
(which consist of ~34% conventional banana, ~27% organic banana, ~36%
rice, and ~3% maize), the objective function varies only slightly, ranging
between US$ 1037 and 1088 ha−1 year−1.
Only when the maximum deviations are further reduced does the
land-use allocation tend towards a less diverse portfolio, comprised
solely of the two uncertain banana options (organic and conventional).
The results obtained using the “individual uncertainties unknown”
variant (Eq. (6)) are also different. Using very coarse information on
the differences in relative uncertainty between the crop returns gener-
ally leads to more diverse land-use portfolios (Fig. 4B). The large shares
of rice in the portfolios formed through variant “individual uncertainties
known” – with rice showing a favorable relation between return and
risk that was not evident using variant “individual uncertainties un-
known” – are split among several crops in the scenarios derived from
the “individual uncertainties unknown” variant. Over a large range of
Fig. 3. Land-use portfolios which form the efficient frontier (i.e., provide the maximum an-
nual economic return for pre-defined accepted levels of economic uncertainty) in a mean-
variance context, derived by Castro et al. (2015).
256 T. Knoke et al. / Ecological Economics 120 (2015) 250–259

non-stochastic portfolio modeling, should the assumptions made and

parameters used for the stochastic mean-variance model be true. Non-
stochastic portfolios with the economic return and standard deviation
expected in a mean-variance context are compared with the efficient
frontier derived by Castro et al. (2015).
Under variant “individual uncertainties known,” we see only very
small losses in economic returns compared to the efficient frontier
(Fig. 5A). Non-stochastic portfolios approach the efficient frontier and
show economic losses (under standard deviations identical to those ex-
pected from classical portfolios) of only 1% to 4%. The differences in
land-use composition between the classical and robust non-stochastic
portfolios are, in some cases, significant. For example, the robust non-
stochastic portfolios contain up to 10 percentage points more rice and
up to 19 percentage points less organic banana than the classical portfo-
lios with the same standard deviation.
The economic losses are more substantial under the variant “individ-
ual uncertainties unknown” (Fig. 5B). Here, economic returns up to 14%
lower may be expected for non-stochastic portfolios, if the assumptions
made for the mean-variance model are true. The greatest relative losses

Fig. 4. Land-use portfolios derived for inclusive (left part, large deviations, usi, considered)
and less inclusive (right part) assumed uncertainty sets. (A) Possible deviations estimated
as multiples of the standard deviation of economic return (“individual uncertainties
known”) for each crop according to Eq. (5). (B) Possible deviations estimated as multiples
of the nominal economic return (“individual uncertainties unknown”) for each crop ac-
cording to Eq. (6).

possible maximum deviations for the nominal crop returns (multiples

mmin from 2.0 to 1.0), highly diverse portfolios prevail, containing six
out of eight crops considered (only laurel and cocoa are largely excluded
from the portfolios).
The weights of the resulting land-use portfolios for multiples mmin
from 2.0 to 1.0 only vary slightly. Based on very little prior information,
the average portfolio composition for this relatively large range of devi-
ations was ~31% (±2.9) conventional banana, ~25% (±1.6) organic ba-
nana, ~ 10% (± 0.6) rice, ~ 12% (± 0.2) balsa, ~ 10% (±0.2) maize, and
~ 3% (±0.5) soybean. Rice, balsa, maize, and soybean vary the least in
their portfolio shares. The objective function varies more under this ap-
proach than under variant “individual uncertainties known” and ranges
from US$ 884 to 1002 ha−1 year−1. In summary, if only coarse informa-
tion on the relative uncertainty for the returns of each crop is used, as is
the case here under variant “individual uncertainties unknown,” we ob-
tain slightly more conservative and highly diversified portfolios for in-
clusive deviation sets. For levels of uncertainty between 1.0 and 0.8,
the portfolio weights become more variable, with a maximum diversifi-
cation for a multiple of 0.9, where the pessimistic returns for each land-
use option become very similar and close to zero.

3.3. Performance of Robust Portfolios in a Mean-variance Context
The previous analyses show that non-stochastic portfolios are not
identical with portfolios obtained from stochastic mean-variance opti-
mization. This implies that non-stochastic portfolios are not part of the
efficient frontier in a mean-variance context. Therefore, we will now ex-
amine how much of the expected economic return may be lost through
Fig. 5. Comparison of the economic returns achieved using robust land-use portfolios with
the achievable maximum economic return (efficient frontier, dashed line) under mean-
variance optimization. (A) Possible deviations in robust non-stochastic models estimated
as multiples of the standard deviation of economic return (“individual uncertainties
known”) according to Eq. (5). (B) Possible deviations in non-stochastic models estimated
as multiples of the nominal economic return (“individual uncertainties unknown”) for
each crop according to Eq. (6). “Downside uncertainty only” means that optimistic scenar-
ios have been replaced by nominal returns.
 T. Knoke et al. / Ecological Economics 120 (2015) 250–259 257

occur for the portfolios that are expected to have low standard devia-
tions. In these cases, the variant “individual uncertainties unknown” of
non-stochastic modeling produced highly diverse portfolios.
However, there are also many diverse portfolios when using the var-
iant “individual uncertainties unknown,” which requires minimal input
information only, that show expected economic losses of less than 10%
in a mean-variance context. This overall picture does not change,
when only downside uncertainty is considered (which means replacing
optimistic scenarios by nominal returns, see Fig. 5).

3.4. Landscape Diversity Expressed by Shannon’s Index

The Shannon index values are consistently higher for both variants
of non-stochastic robust portfolios than those for the classical mean-
variance portfolios (Fig. 6). While the degree of landscape diversity
under variant “individual uncertainties known” is only moderately
higher than that of the classical reference, the differences resulting
from variant “individual uncertainties unknown” are remarkable.
Under this variant, the Shannon indices are up to 116% higher than
indices resulting from classical mean-variance optimization. The
amount of difference in the Shannon index values correlates positively
with the potential costs, when comparing the economic return of robust
and classical portfolios in a mean-variance context.

3.5. Protection Against Low Performance

The non-stochastic portfolio ultimately aims to effectively protect

against poor performance. Based on the constraint to be fulfilled for
each uncertainty scenario in Eq. (2), the achievement of a certain (pos-
sibly high) fraction of the maximum return range (maximum return
possible minus minimum return) must be guaranteed under each un-
certainty scenario. The maximum return will be achieved when 100%
of the maximum return range is captured, and the minimum return is
achieved when 0% of the maximum return range is attained.
Using the most inclusive uncertainty sets, the robust land-use port-
folios actually achieve higher worst-case fractions of the maximum re-
turn range for each scenario than the corresponding classical (mean-
variance) portfolios (Fig. 7). For the variant “individual uncertainties
known,” the non-stochastic robust land-use portfolio achieves at least
39% of the maximum return range (Fig. 7A). In contrast, the portfolios
derived using the stochastic mean-variance approach captured less
than 39% of the maximum return range in 1140 out of 6561 scenarios.
A similar picture appears when the robust and the classical portfolios
under variant “individual uncertainties unknown” are compared. Here,
the robust approach guarantees at least 37% of the maximum return
range, while the stochastic mean-variance optimization did not achieve
this fraction of the maximum return range in 1252 out of 6561 scenarios
Fig. 6. Increasing Shannon index values for the portfolios obtained by robust modeling
compared against the relative loss in economic returns compared to classical mean-vari-
ance portfolios. Portfolios resulting from non-stochastic and stochastic optimization
with identical standard deviation of economic return were compared to derive the
differences.
Fig. 7. Distribution of the achieved fraction of the maximum return range (the achieved re-
turn minus the minimum return, divided by the maximum return range) under the vari-
ous modeling approaches. (A) Uncertainty variant “individual uncertainties known” for
the most inclusive deviations considered (usi 3.0 times si of crop returns, Eq. (5)). (B) Un-
certainty variant “individual uncertainties unknown” for the most inclusive deviations
considered (usi 2.0 times nominal crop returns, Eq. (6)). The distribution of the fraction
of the return range achieved using the non-stochastic robust model is compared with
the distributions achieved using the corresponding classical land-use portfolio.
(Fig. 7B). Consequently, the robust, non-stochastic land-use portfolios
appear to offer good protection against low performance, when aiming
to achieve a high proportion of the maximum possible return range
under each scenario.
3.6. The Effect of Considering Unequal Relative Uncertainties
We have still used some prior information when constructing uncer-
tainty spaces based on the variant “individual uncertainties unknown”
(Eq. (6)). For this case, we assumed a difference in relative uncertainties
of dr = 0.10 when comparing the uncertainty for the crops with the
maximum and minimum returns. One could now argue that such
prior information may not be available, and furthermore that it is incon-
sistent to use such information in an approach striving to minimize
input data requirements. It was therefore interesting to analyze the im-
pact of the assumption of increasing relative uncertainty with increas-
ing economic return.
Generally, we found very similar portfolios for moderately sized
(mmin = 1.25) to very large (mmin = 3) uncertainty sets, regardless of
the assumption about the differences in relative uncertainty (Fig. 8).
However, considering all relative uncertainties as equal (mi = m = con-
stant), produced an artificial situation in which all pessimistic return sce-
narios were zero, for m = 1.00 (Fig. 8A). Here, usi is equal to the nominal
return. This creates somewhat volatile portfolio weights for
1.25 N m N 0.75 and an almost maximum diversification of the portfolio
for m = 1.00. This undesirable effect is mitigated by considering different
relative uncertainties for crops with different economic returns (dr = 0.15
and dr = 0.30, Fig. 8B, C), but this still creates relatively volatile portfolio
weights for mmin around 1.00 and smaller (see Bertsimas et al., 2004, for
another example with volatile portfolio weights). However, if we analyze
258 T. Knoke et al. / Ecological Economics 120 (2015) 250–259
Fig. 8. Portfolios computed under the variant “individual uncertainties unknown” assum-
ing all relative uncertainties are equal (dr = 0, A), or using 0.15 (dr = 0.15, B) and 0.30
(dr = 0.30, B) as the difference between the relative uncertainties for the maximum and
minimum return crops.
large uncertainty sets instead, we obtain robust portfolio compositions,
also when assuming that the relative uncertainties among the crops are
equal.
4. Conclusions
The results of the analysis show that non-stochastic portfolio optimi-
zation leads to land-use portfolios that are more diverse than classical
mean-variance portfolios. The robust portfolios show only small or
(when very little prior information is available) moderate losses in
expected economic returns when the parameters used for mean-
variance optimization are assumed to be true. It may thus be concluded
that non-stochastic robust portfolio modeling is a good alternative to
classical mean-variance optimization whenever economic input data –
particularly for return covariances – is scarce.
Only using historical economic information in a reduced form, as is the
case in both non-stochastic modeling variants described here, results in
diversified and robust land-use portfolios over a large range of uncertain-
ty levels, with little variation in portfolio weights. Better results, with
higher expected returns, can be obtained, however, when information
on the relative uncertainty of individual land-use options is used in the
variant “individual uncertainties known,” which integrates the standard
deviation of individual crop returns to estimate maximum deviations.
Here, consistent portfolios with little variability are derived over a rela-
tively large range of uncertainty levels. For the variant “individual uncer-
tainties unknown,” it could be problematic that advantages of single crops
with a favorable risk to return ratio cannot be fully utilized because of a
lack of precise information on individual uncertainties of crops. For exam-
ple, rice was underrepresented in portfolios derived from uncertainty sets
according to variant “individual uncertainties unknown.” However, in
such a situation, the land-user might be better prepared for unexpected
future changes due to a relatively high level of diversification. Another po-
tential disadvantage of the non-stochastic approach may be the possibil-
ity to produce return scenarios that are somewhat too artificial, such as all
pessimistic return scenarios being zero. This may occur, when no differ-
ences in relative return uncertainties are simulated among the crops, for
a multiple m = 1.0, which creates a deviation, usi, equal to the nominal
crop return. This creates an artificial over-diversification, with compara-
tively high losses in expected return. This, however, can be avoided by
considering relatively large uncertainty sets and/or, at least in part, by
simulating unequal relative return uncertainties among the crops. A fur-
ther potential disadvantage is that important information contained in re-
turn correlations might be lost through our non-stochastic model.
However, we consider it an advantage that no specific information on re-
turn correlations is needed for the non-stochastic approach. Given our
data set, one could have expected that cocoa and soybean are overrepre-
sented in the non-stochastic portfolios, because the non-stochastic
portfolios could have ignored their relatively high positive return correla-
tions with rice (rice – soybean +0.50; rice – cocoa +0.43). Ignoring this
information might have biased the results of the non-stochastic model
leading to higher relative shares of both options, which would have
caused some redundancy. However, soybean and cocoa did not play an
important role in the non-stochastic portfolios. In any case, these poten-
tial technical disadvantages should be kept in mind when applying port-
folio optimization with highly reduced input data.
Another major concern about robust optimization approaches is that
their results may be overly conservative (Bertsimas and Sim, 2004). Also,
Romero (2001) has mentioned that goal programming problems with a
comparable problem formulation to ours (Section 2.1.2) can provide
poor average performance. However, in our numerical examples, an ex-
treme underperformance in expected economic return was not observed.
In most cases, the possible loss in expected economic return did not ex-
ceed 10% (with one example showing 14% loss in expected economic re-
turn). Furthermore, when using information on individual uncertainties
(i.e., the standard deviation of returns), 4% loss in expected returns was
hardly exceeded. Goldfarb and Iyengar (2003) also produced robust port-
folios using simulated data, which only led to a “… modest 20% reduction
in mean performance.” It may therefore be possible to obtain robust port-
folios with much less information, with only a modest loss of expected
economic performance.
A trait of robustness considerations appears to be that portfolios
tend towards more naive diversification with increasing lack of infor-
mation. The uncertainty models obtained using variant “individual un-
certainties unknown” produce highly diverse land-use portfolios that
integrate most of the crops considered, although economic performance
was quite different among the various crops. This tendency was also
found by Hildebrandt and Knoke (2009), who investigated portfolios
of various forest tree species, based on a quite different approach. How-
ever, in contrast to forestry, it may not be as important to consider high-
ly inclusive uncertainty sets in agricultural land-use, because it is easier
to adapt to changing conditions in agriculture than in forestry, where
long production periods prevail. Nevertheless, even in agriculture a cer-
tain protection against uncertainty is advisable, meaning that here land-
use portfolio modeling should also consider relatively large uncertainty
sets.
As a final conclusion, our analysis confirms that diversifying land-
use options is also advisable from a non-stochastic land-use modeling
perspective. This supports, in principle, the conclusions drawn from
 T. Knoke et al. / Ecological Economics 120 (2015) 250–259
the classical portfolio approach, namely that diversified land-use ap-
proaches provide effective protection against uncertainty.
Acknowledgments
We are grateful to “Deutsche Forschungsgemeinschaft” (DFG) for fi-
nancial support of the study (KN 586/5-2, KN 586/9-1, and KN 586/11-
1) and to the members of the research group FOR 816 and the Platform
for Biodiversity and Ecosystem Monitoring and Research in South
Ecuador whose research initiative (http://www.tropicalmountainforest.
org/) made the study possible. Furthermore, we thank Laura Carlson
and Elizabeth Gosling for the language editing, and Dr. Martin Döllerer
for immense help with the Figures.
References
Abson, D.J., Fraser, E.D.G., Benton, T.G., 2013. Landscape diversity and the resilience of ag-
ricultural returns: a portfolio analysis of land-use patterns and economic returns
from lowland agriculture. Agric. Food Secur. 2, 2.
Aerts, J.C.J.H., Botzen, W., Veen van der, A., Krywkow, J., Werners, S., 2008. Dealing with
uncertainty in flood management through diversification. Ecol. Soc. 13, 41.
Angelsen, A., 2010. Policies for reduced deforestation and their impact on agricultural
production. Proc. Natl. Acad. Sci. 107, 19639–19644.
Benitez, P., Kuosmanen, T., Olschewski, R., van Kooten, C., 2006. Conservation payments
under risk: a stochastic dominance approach. Am. J. Agric. Econ. 88, 1–15.
Ben-Tal, A., El Ghaoui, L., Nemirovski, A., 2009. Robust optimization. Princeton University
Press, Princeton and Oxford.
Ben-Tal, A., Nemirovski, A., 2000. Robust solutions of linear programming problems con-
taminated with uncertain data. Math. Program. 88, 411–424.
Bertsimas, D., Sim, M., 2004. The price of robustness. Oper. Res. 52, 35–53.
Bertsimas, D., Brown, D.B., 2009. Constructing uncertainty sets for robust linear optimiza-
tion. Oper. Res. 57, 1483–1495.
Bertsimas, D., Lauprete, G.J., Samarov, A., 2004. Shortfall as a risk measure: properties, op-
timization and application. J. Econ. Dyn. Control. 28, 1353–1381.
Castro, L.M., Calvas, B., Hildebrandt, P., Knoke, T., 2013. Avoiding the loss of shade coffee
plantations: how to derive conservation payments for risk-averse land-users.
Agrofor. Syst. 87, 331–347.
Castro, L.M., Calvas, B., Knoke, T., 2015. Ecuadorian banana farms should consider organic
banana with low price risks in their land-use portfolios. PLoS One 10 (3), e0120384.
http://dx.doi.org/10.1371/journal.pone.0120384.
Djanibekov, U., Khamzina, A., 2014. Stochastic economic assessment of afforestation on
marginal land in irrigated farming system. Environ. Resour. Econ. 59, 1–23.
Edwards, S.F., Link, J.S., Rountree, B.P., 2004. Portfolio management of wild fish stocks.
Ecol. Econ. 49, 317–329.
Figge, F., 2004. Bio-folio: applying portfolio theory to biodiversity. Biodivers. Conserv. 13,
827–849.
Gabrel, V., Murat, C., Thiele, A., 2014. Recent advances in robust optimization: an over-
view. Eur. J. Oper. Res. 235, 471–483.
Goldfarb, D., Iyengar, G., 2003. Robust portfolio selection problems. Math. Oper. Res. 28,
1–38.
Griffiths, J.R., Schindler, D.E., Armstrong, J.B., Scheuerell, M.D., Whited, D.C., Clark, R.A.,
Hilborn, R., Holt, C.A., Lindley, S.T., Stanford, J.A., Volk, E.C., 2014. Performance of
salmon fishery portfolios across western North America. J. Appl. Ecol. 51, 1554–1563.
Halpern, B.S., White, C., Lester, S.E., Costello, C., Gaines, S.D., 2011. Using portfolio theory
to assess tradeoffs between return from natural capital and social equity across
space. Biol. Conserv. 144, 1499–1507.
259
Havlik, P., Enjolras, G., Boisson, J.-M., Jacquet, F., Lherm, M., Veysset, P., 2008. Environmen-
tal good production in the optimum activities portfolio of a risk-averse farmer. Rev.
Agric. Environ. Stud. 86, 9–33.
Härtl, F., Hahn, A., Knoke, T., 2013. Risk-sensitive planning support for forest enterprises:
the YAFO model. Comput. Electron. Agric. 94, 58–70.
Hildebrandt, P., Knoke, T., 2009. Optimizing the shares of native tree species in forest
plantations with biased financial parameters. Ecol. Econ. 68, 2825–2833.
Hildebrandt, P., Knoke, T., 2011. Investment decisions under uncertainty—a methodolog-
ical review on forest science studies. For. Pol. Econ. 13, 1–15.
Kaplan, H.M., 1985. Farmland as a portfolio investment. J. Portf. Manag. 11, 73–78.
Knoke, T., Calvas, B., Moreno, S.O., Onyekwelu, J.C., Griess, V.C., 2013. Food production and
climate protection—what abandoned lands can do to preserve natural forests. Glob.
Environ. Chang. 23, 1064–1072.
Knoke, T., Wurm, J., 2006. Mixed forests and a flexible harvest strategy: a problem for
conventional risk analysis? Eur. J. For. Res. 125, 303–315.
Koellner, T., Schmitz, O.J., 2006. Biodiversity, ecosystem function, and investment risk.
Bioscience 56, 977–985.
Larkin, S., Sylvia, G., Tuininga, C., 2003. Portfolio analysis for optimal seafood product di-
versification and resource management. J. Agric. Resour. Econ. 252-271.
Macmillan, W.D., 1992. Risk and agricultural land use: a reformulation of the portfolio-
theoretic approach to the analysis of a von Thünen economy. Geogr. Anal. 24,
142–158.
Marioni, O., Adkins, P., Hajkowicz, S., 2011. Water planning in a changing climate: joint
applications of cost utility analysis and modern portfolio theory. Environ. Model.
Softw. 26, 18–29.
Markowitz, H., 1952. Portfolio selection. J. Financ. 7, 77–91.
Markowitz, H., 2010. Portfolio theory: as I still see it. Annu. Rev. Financ. Econ. 2, 1–23.
Moore, J.W., McClure, M., Rogers, L.A., Schindler, D.E., 2010. Synchronization and portfolio
performance of threatened salmon. Conserv. Lett. 3, 340–348.
Nagendra, H., 2002. Opposite trends in response for the Shannon and Simpson indices of
landscape diversity. Appl. Geogr. 22, 175–186.
Palma, C.D., Nelson, J.D., 2009. A robust optimization approach protected harvest schedul-
ing decisions against uncertainty. Can. J. For. Res. 39, 342–355.
Paydar, Z., Qureshi, M.E., 2012. Irrigation water management in uncertain
conditions—application of modern portfolio theory. Agric. Water Manag. 115,
47–54.
Phelps, J., Carrascoa, L.R., Webb, E.L., Koh, L.P., Pascual, U., 2013. Agricultural intensifica-
tion escalates future conservation costs. Proc. Natl. Acad. Sci. U. S. A. 110, 7601–7606.
Roche, M.J., McQuinn, K., 2004. Riskier product portfolios under decoupled payment. Eur.
Rev. Agric. Econ. 31, 111–123.
Romero, C., 2001. Extended lexicographic goal programming: a unifying approach.
Omega 29, 63–71.
Samuelson, P.A., 1983. Thünen at two hundred. J. Econ. Lit. 21, 1468–1488.
Sanchirico, J.N., Smith, M.D., Lipton, D.W., 2008. An empirical approach to ecosystem-
based fishery management. Ecol. Econ. 64, 586–596.
Shannon, C.E., 1948. A mathematical theory of communication. Bell Syst. Tech. J. 27
(379–423), 623–656.
Sharpe, W.F., 1994. The Sharpe ratio. J. Portf. Manag. 21, 49–58.
Tamiz, M., Jones, D., Romero, C., 1998. Goal programming for decision making: an over-
view of the current state-of-the-art. Eur. J. Oper. Res. 111, 569–581.
Thünen, J.H.v., 1842. Der isolierte Staat in Beziehung auf Landwirtschaft und
Nationalökonomie. 2nd edition. Leopold, Rostock, Germany.
Wise, M., et al., 2009. Implications of limiting CO2 concentrations for land use and energy.
Science 324, 1183–1186.
Yu, H.-X., Jin, L., 2012. A brief introduction to robust optimization approach. Int. J. Pure
Appl. Math. 74, 121–124.