The Impact of Real Options on Willingness to Pay for Investments in Road Safety
AbstractAbstract: Public investments are dynamic in nature, and decision making must account for the uncertainty, irreversibility and potential for future learning. In this paper we adapt the theory for investment under uncertainty for a public referendum setting and perform the first empirical test to show that estimates of the value of safety (VSL) from stated preference surveys are highly dependent on the inclusion of the option value. Our results indicate an option value of a major economic magnitude. This implies that previously reported VSL estimates are exaggerated.
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Bibliographic InfoPaper provided by Örebro University, School of Business in its series Working Papers with number 2007:9.
Length: 23 pages
Date of creation: 07 Nov 2007
Date of revision: 08 Feb 2008
Publication status: Published in Journal of Health Economics, 2009, pages 563-569.
Contact details of provider:
Postal: Örebro University School of Business, SE - 701 82 ÖREBRO, Sweden
Phone: 019-30 30 00
Fax: 019-33 25 46
Web page: http://www.oru.se/Institutioner/Handelshogskolan-vid-Orebro-universitet/
More information through EDIRC
Value of a Statistical Life; Real Options; Contingent Valuation; Road Safety;
Find related papers by JEL classification:
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
- R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Systems - - - Transportation: Demand, Supply, and Congestion
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-12-15 (All new papers)
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