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Environmental Valuation under Dynamic

Author

Listed:
  • Jinhua Zhao
  • Catherine L. Kling

Abstract

The paper presents two simple models of dynamic consumer behavior, both taking into consideration the implications for welfare measurement when agents can delay transactions while obtaining additional information. One model studies the effect when a purchased good is non-perishable and can be consumed in the future, while the other model introduces a perishable good, implying that the quantity of consumption can vary in each period. Even in the case of the perishable item, the availability of information at the time of the consumption decision has important implications for welfare measurement. Agents who must make a decision at the present but know that additional information will be available later may change their income allocation to take advantage of the future information. When this leads to the capture of different information sets at these different times, welfare assessment may be (but is not necessarily) inconsistent with the empirical evidence and may be inappropriate for use in policy valuation.

Suggested Citation

  • Jinhua Zhao & Catherine L. Kling, 2002. "Environmental Valuation under Dynamic," Center for Agricultural and Rural Development (CARD) Publications 02-wp292, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    • Handle: RePEc:ias:cpaper:02-wp292
    as

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    References listed on IDEAS

    as
    1. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    2. Jinhua Zhao & Catherine L. Kling, 2004. "Willingness to Pay, Compensating Variation, and the Cost of Commitment," Economic Inquiry, Western Economic Association International, vol. 42(3), pages 503-517, July.
    3. Zhao, Jinhua & Kling, Catherine L., 2001. "A new explanation for the WTP/WTA disparity," Economics Letters, Elsevier, vol. 73(3), pages 293-300, December.
    4. Kenneth J. Arrow & Anthony C. Fisher, 1974. "Environmental Preservation, Uncertainty, and Irreversibility," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 88(2), pages 312-319.
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