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The Choice of a Welfare Measure under Uncertainty

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  • Richard C. Ready

Abstract

Use of option price as a welfare measure when conducting a benefit-cost analysis under uncertainty is appropriate only if the project under consideration will have no impact on the allocation of risk among individuals. Use of the willingness-to-pay locus as a benefit measure is appropriate only if the project will result in an efficient allocation of risk. A more general welfare measure is proposed, maximum agreeable payment, that correctly measures the benefits and costs of any project.

Suggested Citation

  • Richard C. Ready, 1993. "The Choice of a Welfare Measure under Uncertainty," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 75(4), pages 896-904.
    • Handle: RePEc:oup:ajagec:v:75:y:1993:i:4:p:896-904.
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    File URL: http://hdl.handle.net/10.2307/1243977
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    Cited by:

    1. Klaus Glenk & Sergio Colombo, 2013. "Modelling outcome-related risk in choice experiments," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 57(4), pages 559-578, October.
    2. Dorfman, Jeffrey H. & Keeler, Andrew G. & Kriesel, Warren, 1996. "Valuing Risk-Reducing Interventions With Hedonic Models: The Case Of Erosion Protection," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 21(1), pages 1-11, July.
    3. Shaw, W. Douglass & Woodward, Richard T., 2008. "Why environmental and resource economists should care about non-expected utility models," Resource and Energy Economics, Elsevier, vol. 30(1), pages 66-89, January.

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