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Arrow-Fisher-Hanemann-Henry and Dixit-Pindyck Option Values Under Strategic Interactions

Author

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  • Fujii, Tomoki
  • Ishikawa, Ryuichiro

Abstract

We extend the Arrow-Fisher-Hanemann-Henry (AFHH) and Dixit-Pindyck (DP) option values to a game situation. By reinterpreting the AFHH option value as a change in the surplus from conservation because of the prospect of future information, we deal with a conceptual difficulty associated with the AFHH option value in the presence of strategic interactions. We then introduce the DP option value into a game situation. We show that the equivalence between the expected value of information and the DP option value in the standard model does not hold under strategic interactions.

Suggested Citation

  • Fujii, Tomoki & Ishikawa, Ryuichiro, 2013. "Arrow-Fisher-Hanemann-Henry and Dixit-Pindyck Option Values Under Strategic Interactions," Strategic Behavior and the Environment, now publishers, vol. 3(3), pages 169-183, March.
    • Handle: RePEc:now:jnlsbe:102.00000028
    DOI: 10.1561/102.00000028
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    Cited by:

    1. Traeger, Christian P., 2014. "On option values in environmental and resource economics," Resource and Energy Economics, Elsevier, vol. 37(C), pages 242-252.

    More about this item

    Keywords

    Irreversibility; Quasi-option value; Uncertainty; Value of information;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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