Strategic Behavior and the Environment > Vol 3 > Issue 3

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

Tomoki Fujii, School of Economics, Singapore Management University, tfujii@smu.edu.sg , Ryuichiro Ishikawa, Faculty of Engineering, Information and Systems, University of Tsukuba, Japan, ishikawa@sk.tsukuba.ac.jp
 
Suggested Citation
Tomoki Fujii and Ryuichiro Ishikawa (2013), "Arrow–Fisher–Hanemann–Henry and Dixit–Pindyck Option Values Under Strategic Interactions", Strategic Behavior and the Environment: Vol. 3: No. 3, pp 169-183. http://dx.doi.org/10.1561/102.00000028

Publication Date: 16 Mar 2013
© 2013 T. Fujii and R. Ishikawa
 
Subjects
Environmental Economics,  Economic Theory,  Public Policy
 
Keywords
C72, H43, Q50
Irreversibility, Quasi-option value, Uncertainty, Value of information
 

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In this article:
Introduction 
Setup 
Case (I): Social Optimum 
Case (II): Strategic Interactions 
Discussion 
References 

Abstract

We extend the Arrow–Fisher–Hanemann–Henry (AFHH) and Dixit–Pindyck (DP) option values to a game situation. By reinterpreting the AFHH option value as a change in the surplus from conservation because of the prospect of future information, we deal with a 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.

DOI:10.1561/102.00000028