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Estimating the Option Value of Exercising Risk-taking Behavior with the Hedonic Market Approach

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  • Stefan Borsky

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  • Paul A. Raschky

    ()

Abstract

Within the last decades an increasing number of people practice risky sports in their leisure time. Although there exists a vast number of economic literature on risk-taking behavior, an estimation of the individual willingness to pay (WTP) for the option to exercise risk-taking is missing. Monetarized values could support private industries in design pricing schemes that set incentives to reduce risk-taking behavior as well as public policy-makers to develop alternative instruments to reduce the adverse effects of risk-taking activity (e.g. accidents). We use data of 69 Austrian Ski resorts and 3,637 reported ski accidents and apply the hedonic market method. Our results suggest that the individual WTP for a hypothetical increase in the possibility to undertake risk-taking activities lies between 11\% and 25\% of the price of a ski-lift-ticket.

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Bibliographic Info

Paper provided by Faculty of Economics and Statistics, University of Innsbruck in its series Working Papers with number 2008-14.

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Length: 27
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Handle: RePEc:inn:wpaper:2008-14

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Related research

Keywords: Hedonic market approach; individual risk-taking; sports;

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  1. Dohmen, Thomas & Falk, Armin & Huffman, David B. & Sunde, Uwe & Schupp, Jürgen & Wagner, Gert G., 2005. "Individual Risk Attitudes: New Evidence from a Large, Representative, Experimentally-Validated Survey," IZA Discussion Papers 1730, Institute for the Study of Labor (IZA).
  2. Richard Carson & Nicholas Flores & Norman Meade, 2001. "Contingent Valuation: Controversies and Evidence," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 19(2), pages 173-210, June.
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  5. Milton Friedman & L. J. Savage, 1952. "The Expected-Utility Hypothesis and the Measurability of Utility," Journal of Political Economy, University of Chicago Press, vol. 60, pages 463.
  6. Hanley, Nick & Shogren, Jason F. & White, Ben, 2001. "Introduction to Environmental Economics," OUP Catalogue, Oxford University Press, number 9780198775959.
  7. Harry Markowitz, 1952. "The Utility of Wealth," Journal of Political Economy, University of Chicago Press, vol. 60, pages 151.
  8. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
  9. Elke U. Weber & Richard A. Milliman, 1997. "Perceived Risk Attitudes: Relating Risk Perception to Risky Choice," Management Science, INFORMS, vol. 43(2), pages 123-144, February.
  10. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74, pages 132.
  11. Schoemaker, Paul J H, 1993. " Determinants of Risk-Taking: Behavioral and Economic Views," Journal of Risk and Uncertainty, Springer, vol. 6(1), pages 49-73, January.
  12. Cropper, Maureen L & Deck, Leland B & McConnell, Kenneth E, 1988. "On the Choice of Functional Form for Hedonic Price Functions," The Review of Economics and Statistics, MIT Press, vol. 70(4), pages 668-75, November.
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