IDEAS home Printed from https://ideas.repec.org/p/ukc/ukcedp/1107.html
   My bibliography  Save this paper

A General Equilibrium Model of Environmental Option Values

Author

Listed:
  • Iain Fraser
  • Katsuyuki Shibayama

Abstract

In this paper we consider the option value of the environment employing a general equilibrium growth model with a stochastic technology. In our model, as in existing studies, because of irreversibility, the environment has significant real option value. However, unlike the existing literature in which the uncertainty of the value of the environment is given exogenously, the value of the environment is endogenously determined. In our model, the elasticity of substitution eta between the environment and consumption plays a crucial role. We show that the option value, and hence, the optimal decision are both affected by eta not only quantitatively but also qualitatively.

Suggested Citation

  • Iain Fraser & Katsuyuki Shibayama, 2011. "A General Equilibrium Model of Environmental Option Values," Studies in Economics 1107, School of Economics, University of Kent.
    • Handle: RePEc:ukc:ukcedp:1107
    as

    Download full text from publisher

    File URL: https://www.kent.ac.uk/economics/repec/1107.pdf
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    real option values; environment; general equilibrium; elasticity of substitution;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ukc:ukcedp:1107. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Dr Anirban Mitra (email available below). General contact details of provider: https://www.kent.ac.uk/economics/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.