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

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Author Info

  • Krüger, Niclas A

    ()
    (Department of Business, Economics, Statistics and Informatics)

  • Svensson, Mikael

    ()
    (Department of Business, Economics, Statistics and Informatics)

Abstract

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.

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File URL: http://www.oru.se/PageFiles/15374/wp2007-09%20rev.pdf
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Bibliographic Info

Paper provided by Örebro University, School of Business in its series Working Papers with number 2007:9.

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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.
Handle: RePEc:hhs:oruesi:2007_009

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/
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Related research

Keywords: Value of a Statistical Life; Real Options; Contingent Valuation; Road Safety;

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