Quasi-Option Value Under Strategic Interactions
SMU Economics and Statistics Working Paper No. 04-2011
37 Pages Posted: 13 Apr 2011 Last revised: 3 Nov 2011
Date Written: January 27, 2011
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 demonstrate 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.
Keywords: Biodiversity, Irreversibility, Quasi-option value, Uncertainty, Value of information
JEL Classification: C72, H43, Q50
Suggested Citation: Suggested Citation