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Quasi-option Value under Strategic Interactions

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  • Tomoki Fujii

    ()
    (School of Economics, Singapore Management University)

  • Ryuichiro Ishikawa

    ()
    (Graduate School of Systems and Information Engineering, University of Tsukuba)

Abstract

We consider a simple two-period model with irreversible investment with strategic interactions. In this setup, we try to extend the concept of the quasi-option value (QOV) by Arrow and Fisher (1974), Henry (1974), Fisher and Hanemann (1987) and Hanemann (1989) to a game-theoretic situation. In doing so, we demostrate some conceptual difficulties with the QOV, and stress the potential importance of information-induced inefficiency. We also show that this inefficiency can be remedied by incorporating sophisticated control of information flow. Our model is potentially applicable to various global environmental problems.

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Bibliographic Info

Paper provided by Singapore Management University, School of Economics in its series Working Papers with number 04-2011.

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Length: 39 pages
Date of creation: Mar 2011
Date of revision:
Publication status: Published in SMU Economics and Statistics Working Paper Series
Handle: RePEc:siu:wpaper:04-2011

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Related research

Keywords: Biodiversity; Irreversibility; Quasi-option value; Uncertainty; Value of Information;

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  1. Henry, Claude, 1974. "Investment Decisions Under Uncertainty: The "Irreversibility Effect."," American Economic Review, American Economic Association, vol. 64(6), pages 1006-12, December.
  2. Bruno Bassan & Olivier Gossner & Marco Scarsini & Shmuel Zamir, 2003. "Positive value of information in games," International Journal of Game Theory, Springer, vol. 32(1), pages 17-31, December.
  3. Hanemann, W. Michael, 1989. "Information and the concept of option value," Journal of Environmental Economics and Management, Elsevier, vol. 16(1), pages 23-37, January.
  4. Fisher, Anthony C. & Hanemann, W. Michael, 1987. "Quasi-option value: Some misconceptions dispelled," Journal of Environmental Economics and Management, Elsevier, vol. 14(2), pages 183-190, June.
  5. Fisher, Anthony C., 2000. "Investment under uncertainty and option value in environmental economics," Resource and Energy Economics, Elsevier, vol. 22(3), pages 197-204, July.
  6. Arrow, Kenneth J & Fisher, Anthony C, 1974. "Environmental Preservation, Uncertainty, and Irreversibility," The Quarterly Journal of Economics, MIT Press, vol. 88(2), pages 312-19, May.
  7. Conrad, Jon M, 1980. "Quasi-Option Value and the Expected Value of Information," The Quarterly Journal of Economics, MIT Press, vol. 94(4), pages 813-20, June.
  8. Kamien, Morton I. & Tauman, Yair & Zamir, Shmuel, 1990. "On the value of information in a strategic conflict," Games and Economic Behavior, Elsevier, vol. 2(2), pages 129-153, June.
  9. Mensink, Paul & Requate, Till, 2005. "The Dixit-Pindyck and the Arrow-Fisher-Hanemann-Henry option values are not equivalent: a note on Fisher (2000)," Resource and Energy Economics, Elsevier, vol. 27(1), pages 83-88, January.
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