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The Impact of Real Options on Willingness to Pay for Investments in Road Safety

Author

Listed:
  • Krüger, Niclas A

    (Department of Business, Economics, Statistics and Informatics)

  • Svensson, Mikael

    (Department of Business, Economics, Statistics and Informatics)

Abstract

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.

Suggested Citation

  • Krüger, Niclas A & Svensson, Mikael, 2007. "The Impact of Real Options on Willingness to Pay for Investments in Road Safety," Working Papers 2007:9, Örebro University, School of Business, revised 17 Oct 2008.
    • Handle: RePEc:hhs:oruesi:2007_009
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Value of a Statistical Life; Real Options; Contingent Valuation; Road Safety;
    All these keywords.

    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 Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise

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