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On Supply Side Option Value

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  • Graham-Tomasi, Theodore
  • Myers, Robert J.

Abstract

In this paper the ability to sign supply-side option value is studied. The compensating and equivalent option prices are defined, and it is argued that equivalent option price is the preferred welfare measure. In the absence of income risk, if the probability distribution of supply is degenerate either with or without the project, one-way test of project acceptance can be established.

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File URL: http://purl.umn.edu/13341
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Bibliographic Info

Paper provided by University of Minnesota, Department of Applied Economics in its series Staff Papers with number 13341.

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Date of creation: 1989
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Handle: RePEc:ags:umaesp:13341

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Keywords: Research Methods/ Statistical Methods;

References

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  1. Richard C. Bishop, 1982. "Option Value: An Exposition and Extension," Land Economics, University of Wisconsin Press, vol. 58(1), pages 1-15.
  2. V. Kerry Smith, 1985. "Supply Uncertainty, Option Price, and Indirect Benefit Estimation," Land Economics, University of Wisconsin Press, vol. 64(3), pages 303-307.
  3. Schmalensee, Richard, 1972. "Option Demand and Consumer's Surplus: Valuing Price Changes under Uncertainty," American Economic Review, American Economic Association, vol. 62(5), pages 813-24, December.
  4. Hausman, Jerry A, 1981. "Exact Consumer's Surplus and Deadweight Loss," American Economic Review, American Economic Association, vol. 71(4), pages 662-76, September.
  5. David S. Brookshire & Larry S. Eubanks & Alan Randall, 1983. "Estimating Option Prices and Existence Values for Wildlife Resources," Land Economics, University of Wisconsin Press, vol. 59(1), pages 1-15.
  6. Chipman, John S & Moore, James C, 1980. "Compensating Variation, Consumer's Surplus, and Welfare," American Economic Review, American Economic Association, vol. 70(5), pages 933-49, December.
  7. Chavas, Jean-Paul & Bishop, Richard C. & Segerson, Kathleen, 1986. "Ex ante consumer welfare evaluation in cost-benefit analysis," Journal of Environmental Economics and Management, Elsevier, vol. 13(3), pages 255-268, September.
  8. Mark L. Plummer, 1986. "Supply Uncertainty, Option Price, and Option Value: An Extension," Land Economics, University of Wisconsin Press, vol. 62(3), pages 313-318.
  9. A. Myrick Freeman III, 1985. "Supply Uncertainty, Option Price, and Option Value," Land Economics, University of Wisconsin Press, vol. 62(2), pages 176-181.
  10. Graham, Daniel A, 1981. "Cost-Benefit Analysis under Uncertainty," American Economic Review, American Economic Association, vol. 71(4), pages 715-25, September.
  11. Mendelsohn, Robert & Strang, William J, 1984. "Cost-Benefit Analysis under Uncertainty: Comment," American Economic Review, American Economic Association, vol. 74(5), pages 1096-99, December.
  12. Hartman, Richard & Plummer, Mark L., 1987. "Option value under income and price uncertainty," Journal of Environmental Economics and Management, Elsevier, vol. 14(3), pages 212-225, September.
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