Value of Information and Averting Behavior: The Case of Toxic Water Contamination
Little theoretical work has been done previously on the welfare valuation of changes in price and quality when consumers are imperfectly informed. The presence of imperfect information is particularly important in the analysis of averting behaviors. We develop a theoretical welfare measure, called quasi-compensating variation, as a natural extension of compensating variation (CV). We show that this welfare measure offers not only a money metric of the "value of information", but also a means to appropriately evaluate the welfare effects of various policies when consumers are imperfectly informed of water contamination. With a numerical example and our decomposition results (Propositions 2 and 3), we demonstrate that (i) the value of information could potentially account for a large portion of the total welfare gains when regulators simultaneously disseminate accurate information and improve drinking water quality, (ii) the willingness to pay to avoid toxic contamination is strictly larger for imperfectly informed than perfectly informed consumers, and (iii) the distribution of imperfect information among consumers affects the relative performance of the two compelling policy alternatives, "self-protection" and "pollution control".
|Date of creation:||2006|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (414) 918-3190
Fax: (414) 276-3349
Web page: http://www.aaea.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Polasky, Stephen, 1992. "The private and social value of information: Exploration for exhaustible resources," Journal of Environmental Economics and Management, Elsevier, vol. 23(1), pages 1-21, July.
- Mirman, L.J. & Samuelson, L. & Schlee, E.E., 1991.
"Strategic information manipulation in duopolies,"
1991-37, Tilburg University, Center for Economic Research.
- Seung-Jun Kwak & Clifford Russell, 1994. "Contingent valuation in Korean environmental planning: A pilot application to the protection of drinking water quality in Seoul," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 4(5), pages 511-526, October.
- Courant, Paul N. & Porter, Richard C., 1981. "Averting expenditure and the cost of pollution," Journal of Environmental Economics and Management, Elsevier, vol. 8(4), pages 321-329, December.
- Bartik, Timothy J., 1988.
"Evaluating the benefits of non-marginal reductions in pollution using information on defensive expenditures,"
Journal of Environmental Economics and Management,
Elsevier, vol. 15(1), pages 111-127, March.
- Timothy J. Bartik, 2008. "Evaluating the Benefits of Non-marginal Reductions in Pollution Using Information on Defensive Expenditures," Book chapters authored by Upjohn Institute researchers, in: Joseph Herriges & Catherine L. Kling (ed.), Revealed Preference Approaches to Environmental Valuation, volume 0, pages 459-475 W.E. Upjohn Institute for Employment Research.
When requesting a correction, please mention this item's handle: RePEc:ags:aaea06:21395. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search)
If references are entirely missing, you can add them using this form.