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Environmental Valuation under Dynamic Consumer Behavior

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  • Zhao, Jinhua
  • Kling, Catherine L.

Abstract

The paper presents two simple models of dynamic consumer behavior, both taking into consideration the implications for welfare measurement when agents can delay transactions while obtaining additional information. One model studies the effect when a purchased good is non-perishable and can be consumed in the future, while the other model introduces a perishable good, implying that the quantity of consumption can vary in each period. Even in the case of the perishable item, the availability of information at the time of the consumption decision has important implications for welfare measurement. Agents who must make a decision at the present but know that additional information will be available later may change their income allocation to take advantage of the future information. When this leads to the capture of different information sets at these different times, welfare assessment may be (but is not necessarily) inconsistent with the empirical evidence and may be inappropriate for use in policy valuation.

Suggested Citation

  • Zhao, Jinhua & Kling, Catherine L., 2006. "Environmental Valuation under Dynamic Consumer Behavior," ISU General Staff Papers 200609270700001316, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genstf:200609270700001316
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    References listed on IDEAS

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    1. Jinhua Zhao & Catherine L. Kling, 2004. "Willingness to Pay, Compensating Variation, and the Cost of Commitment," Economic Inquiry, Western Economic Association International, vol. 42(3), pages 503-517, July.
    2. Kenneth J. Arrow & Anthony C. Fisher, 1974. "Environmental Preservation, Uncertainty, and Irreversibility," Palgrave Macmillan Books, in: Chennat Gopalakrishnan (ed.), Classic Papers in Natural Resource Economics, chapter 4, pages 76-84, Palgrave Macmillan.
    3. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    4. Hanemann, W. Michael, 1989. "Information and the concept of option value," Journal of Environmental Economics and Management, Elsevier, vol. 16(1), pages 23-37, January.
    5. Randall, Alan & Stoll, John R, 1980. "Consumer's Surplus in Commodity Space," American Economic Review, American Economic Association, vol. 70(3), pages 449-455, June.
    Full references (including those not matched with items on IDEAS)

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