Testing Value vs Waiting Value in Environmental Decisions under Uncertainty

Attanasi, Giuseppe Marco and Montesano, Aldo (2010) Testing Value vs Waiting Value in Environmental Decisions under Uncertainty. TSE Working Paper, n. 10-154

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Official URL: http://tse-fr.eu/pub/22661

Abstract

This paper introduces the concept of the Testing Value into the analysis of environmental decisions under uncertainty and irreversibility. This value emerges in situations where the probability of receiving information concerning future economic benefits
and costs of development depends on the level of development carried out. We show that when information may be acquired also exogenously, the Testing Value could push a risk-neutral decision maker to preserve more in the present and eventually in the future.
The reason is that the Testing Value often leads to a only partial development of the environmental asset; on the contrary, the Waiting Value (a generalization of the quasi-option value à la Arrow and Fisher (1974)) always leads to corner solutions. Althoughits existence stems from endogenous information, surprisingly enough, the Testing Value is positively related to the probability of acquiring information exogenously.

Item Type: Monograph (Working Paper)
Language: English
Date: April 2010
Uncontrolled Keywords: Testing value, waiting value, exogenous and endogenous information, irreversibility
JEL codes: D61 - Allocative Efficiency; Cost-Benefit Analysis
D81 - Criteria for Decision-Making under Risk and Uncertainty
Q32 - Exhaustible Resources and Economic Development
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 18 Jan 2012 06:01
Last Modified: 07 Mar 2018 13:22
OAI ID: oai:tse-fr.eu:22661
URI: http://publications.ut-capitole.fr/id/eprint/3360

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