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Estimating the Option Value of Exercising Risk-taking Behavior with the Hedonic Market Approach

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Author Info
Stefan Borsky ()
Paul A. Raschky ()

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Abstract

Within the last decades an increasing number of people practice risky sports in their leisure time. Although there exists a vast number of economic literature on risk-taking behavior, an estimation of the individual willingness to pay (WTP) for the option to exercise risk-taking is missing. Monetarized values could support private industries in design pricing schemes that set incentives to reduce risk-taking behavior as well as public policy-makers to develop alternative instruments to reduce the adverse effects of risk-taking activity (e.g. accidents). We use data of 69 Austrian Ski resorts and 3,637 reported ski accidents and apply the hedonic market method. Our results suggest that the individual WTP for a hypothetical increase in the possibility to undertake risk-taking activities lies between 11\% and 25\% of the price of a ski-lift-ticket.

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Paper provided by Faculty of Economics and Statistics, University of Innsbruck in its series Working Papers with number 2008-14.

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Handle: RePEc:inn:wpaper:2008-14

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Related research
Keywords: Hedonic market approach; individual risk-taking; sports;

Find related papers by JEL classification:
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
L8 - Industrial Organization - - Industry Studies: Services
Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects

References listed on IDEAS
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  1. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde & Jürgen Schupp & Gert G. Wagner, 2005. "Individual Risk Attitudes: New Evidence from a Large, Representative, Experimentally-Validated Survey," IZA Discussion Papers 1730, Institute for the Study of Labor (IZA). [Downloadable!]
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  2. Richard Carson & Nicholas Flores & Norman Meade, 2001. "Contingent Valuation: Controversies and Evidence," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 19(2), pages 173-210, June. [Downloadable!] (restricted)
    Other versions:
  3. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb.. [Downloadable!] (restricted)
  4. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74, pages 132. [Downloadable!] (restricted)
  5. Cropper, Maureen L & Deck, Leland B & McConnell, Kenneth E, 1988. "On the Choice of Functional Form for Hedonic Price Functions," The Review of Economics and Statistics, MIT Press, vol. 70(4), pages 668-75, November. [Downloadable!] (restricted)
  6. Harry Markowitz, 1952. "The Utility of Wealth," Journal of Political Economy, University of Chicago Press, vol. 60, pages 151. [Downloadable!] (restricted)
  7. Milton Friedman & L. J. Savage, 1952. "The Expected-Utility Hypothesis and the Measurability of Utility," Journal of Political Economy, University of Chicago Press, vol. 60, pages 463. [Downloadable!] (restricted)
  8. James G. Mulligan & Emmanuel Llinares, 2003. "Market Segmentation and the Diffusion of Quality-Enhancing Innovations: The Case of Downhill Skiing," The Review of Economics and Statistics, MIT Press, vol. 85(3), pages 493-501, 05. [Downloadable!] (restricted)
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