The Impact of Real Options on Willingness to Pay for Investments in Road Safety
Abstract: Public investments are dynamic in nature, and decision making must account for the uncertainty, irreversibility and potential for future learning. In this paper we adapt the theory for investment under uncertainty for a public referendum setting and perform the first empirical test to show that estimates of the value of safety (VSL) from stated preference surveys are highly dependent on the inclusion of the option value. Our results indicate an option value of a major economic magnitude. This implies that previously reported VSL estimates are exaggerated.
|Date of creation:||07 Nov 2007|
|Date of revision:||08 Feb 2008|
|Publication status:||Published in Journal of Health Economics, 2009, pages 563-569.|
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