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On the Valuation of Uncertainty in Welfare Analysis

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  • Jean-Paul Chavas
  • Daniel Mullarkey

Abstract

This article develops a general model of private and public choice under temporal uncertainty. The model incorporates the effects of risk preferences and the prospect of future learning into both the individual and aggregate valuations of public projects. The analysis provides new insights on individual valuation, its implications for benefit-cost analysis and the characterization of Pareto-efficiency under uncertainty. It also resolves some of the confusion in the option value and quasioption value literature. Copyright 2002, Oxford University Press.

Suggested Citation

  • Jean-Paul Chavas & Daniel Mullarkey, 2002. "On the Valuation of Uncertainty in Welfare Analysis," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(1), pages 23-38.
    • Handle: RePEc:oup:ajagec:v:84:y:2002:i:1:p:23-38
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    File URL: http://hdl.handle.net/10.1111/1467-8276.00240
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    Cited by:

    1. Craig A. Bond & John B. Loomis, 2009. "Using Numerical Dynamic Programming to Compare Passive and Active Learning in the Adaptive Management of Nutrients in Shallow Lakes," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 57(4), pages 555-573, December.
    2. Edward E. Schlee & V. Kerry Smith, 2022. "The welfare cost of uncertainity in policy outcomes," Chapters, in: The Economics of Environmental Risk, chapter 4, pages 65-76, Edward Elgar Publishing.
    3. John Rolfe & Jill Windle, 2005. "Valuing options for reserve water in the Fitzroy Basin," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 49(1), pages 91-114, March.
    4. Sabrina Hammiche & Laurent Denant-Boemont, 2008. "Que vaut la flexibilité des choix individuels de transport ? Une étude de cas expérimental," Économie et Prévision, Programme National Persée, vol. 182(1), pages 97-111.
    5. Rolfe, John & Windle, Jill, 2005. "Valuing options for reserve water in the Fitzroy Basin," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 49(1), pages 1-24.
    6. 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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