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
Date Written: November 11, 2011
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: Suggested Citation