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Quasi-option value and hard uncertainty

Published online by Cambridge University Press:  02 April 2001

MARCELLO BASILI
Affiliation:
Dipartimento di Economia Politica, Università di Siena, Piazza San Francesco, 53100, Siena, Italy. Email: basili@unisi.it

Abstract

The notion of intertemporal h-option value is introduced to extend to environmental decision-making problems of the concept of quasi-option value, defined by Arrow and Fisher and Henry, whenever an individual faces imprecise information, or hard uncertainty, represented by a non-additive measure over events. Under hard uncertainty and irreversibility, the decision-maker faces the intertemporal h-option value, that is an uncertainty premium of preservation, which represents the gain from being able to learn about the future consequences of irreversible actions. The intertemporal h-option value is a correction factor that has to be taken into account in evaluating the total economic value of feasible actions.

Type
Theory and Applications
Copyright
© 1998 Cambridge University Press

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