Arrow-Fisher-Hanemann-Henry and Dixit-Pindyck Option Values Under Strategic Interactions

SMU Economics & Statistics Working Paper No. 13-2011

Strategic Behavior and the Environment, Vol. 3(3), 169-183, 2013.

15 Pages Posted: 11 Nov 2011 Last revised: 10 Aug 2013

See all articles by Tomoki Fujii

Tomoki Fujii

Singapore Management University - School of Economics

Ryuichiro Ishikawa

Waseda University-SILS

Date Written: November 11, 2011

Abstract

We extend the Arrow-Fisher-Hanemann-Henry (AFHH) and Dixit-Pindyck (DP) option values to game situations. By reinterpreting the AFHH option value as a change in the surplus from conservation because of the prospect of future information, we deal with the conceptual difficulty associated with the AFHH option value in the presence of strategic interactions. We then introduce the DP option value into a game situation. We show that the equivalence between the expected value of information and the DP option value in the standard model does not hold under strategic interactions.

Keywords: irreversibility, Quasi-option values, biodiversity, uncertainty, value of information

JEL Classification: C72, H43, Q50

Suggested Citation

Fujii, Tomoki and Ishikawa, Ryuichiro, Arrow-Fisher-Hanemann-Henry and Dixit-Pindyck Option Values Under Strategic Interactions (November 11, 2011). SMU Economics & Statistics Working Paper No. 13-2011. Available at SSRN: https://ssrn.com/abstract=1957921 or http://dx.doi.org/10.2139/ssrn.1957921

Tomoki Fujii

Singapore Management University - School of Economics ( email )

90 Stamford Road
178903
Singapore
+6568280279 (Phone)
+6568280833 (Fax)

HOME PAGE: http://www.mysmu.edu/faculty/tfujii/

Ryuichiro Ishikawa (Contact Author)

Waseda University-SILS ( email )

Shinjuku, Tokyo 1658050
Japan

HOME PAGE: http://www.f.waseda.jp/r.ishikawa/

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