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Option Demand Revisited

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  • Michael Krashinsky

Abstract

Weisbrod argues that private commodities for which demand is infrequent and uncertain and for which disinvestment is irrevocable may involve a market failure that he calls option demand. He has identified an important phenomenon, but his analysis is somewhat flawed. If entrepreneurs can price discriminate perfectly, as Weisbrod assumes, there can be no value in options to purchase. Nonetheless, the goods he describes do involve market failures: inability to price discriminate and the free rider problems associated with public goods. Thus option demand remains a useful concept.

Suggested Citation

  • Michael Krashinsky, 1987. "Option Demand Revisited," Public Finance Review, , vol. 15(4), pages 460-471, October.
    • Handle: RePEc:sae:pubfin:v:15:y:1987:i:4:p:460-471
    DOI: 10.1177/109114218701500407
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    References listed on IDEAS

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    1. Burton A. Weisbrod, 1964. "Collective-Consumption Services of Individual-Consumption Goods," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 78(3), pages 471-477.
    2. Millard F. Long, 1967. "Collective-Consumption Services of Individual-Consumption Goods: Comment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 81(2), pages 351-352.
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