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Quasi-option Value under Strategic Interactions

Author

Listed:
  • Tomoki Fujii

    (School of Economics, Singapore Management University)

  • Ryuichiro Ishikawa

    (Graduate School of Systems and Information Engineering, University of Tsukuba)

Abstract

We consider a simple two-period model with irreversible investment with strategic interactions. In this setup, we try to extend the concept of the quasi-option value (QOV) by Arrow and Fisher (1974), Henry (1974), Fisher and Hanemann (1987) and Hanemann (1989) to a game-theoretic situation. In doing so, we demostrate some conceptual difficulties with the QOV, and stress the potential importance of information-induced inefficiency. We also show that this inefficiency can be remedied by incorporating sophisticated control of information flow. Our model is potentially applicable to various global environmental problems.

Suggested Citation

  • Tomoki Fujii & Ryuichiro Ishikawa, 2011. "Quasi-option Value under Strategic Interactions," Working Papers 04-2011, Singapore Management University, School of Economics.
    • Handle: RePEc:siu:wpaper:04-2011
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    References listed on IDEAS

    as
    1. 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.
    2. Bruno Bassan & Olivier Gossner & Marco Scarsini & Shmuel Zamir, 2003. "Positive value of information in games," International Journal of Game Theory, Springer;Game Theory Society, vol. 32(1), pages 17-31, December.
    3. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    4. Mensink, Paul & Requate, Till, 2005. "The Dixit-Pindyck and the Arrow-Fisher-Hanemann-Henry option values are not equivalent: a note on Fisher (2000)," Resource and Energy Economics, Elsevier, vol. 27(1), pages 83-88, January.
    5. Jon M. Conrad, 1980. "Quasi-Option Value and the Expected Value of Information," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 94(4), pages 813-820.
    6. 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.
    7. Fisher, Anthony C. & Hanemann, W. Michael, 1987. "Quasi-option value: Some misconceptions dispelled," Journal of Environmental Economics and Management, Elsevier, vol. 14(2), pages 183-190, June.
    8. Claude Henry, 1974. "Investment decisions under uncertainty: The "irreversibility effect"," ULB Institutional Repository 2013/327343, ULB -- Universite Libre de Bruxelles.
    9. Henry, Claude, 1974. "Investment Decisions Under Uncertainty: The "Irreversibility Effect."," American Economic Review, American Economic Association, vol. 64(6), pages 1006-1012, December.
    10. Kamien, Morton I. & Tauman, Yair & Zamir, Shmuel, 1990. "On the value of information in a strategic conflict," Games and Economic Behavior, Elsevier, vol. 2(2), pages 129-153, June.
    11. Fisher, Anthony C., 2000. "Investment under uncertainty and option value in environmental economics," Resource and Energy Economics, Elsevier, vol. 22(3), pages 197-204, July.
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    More about this item

    Keywords

    Biodiversity; 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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