Uncertainty, benefit-cost analysis, and the treatment of option value

V. Kerry Smith

Research output: Contribution to journalArticle

25 Scopus citations

Abstract

This paper proposes a new conceptual framework for defining welfare measures under uncertainty: the planned expenditure function. This function describes the locus of expenditures on contingent claims that are required to realize a given level of expected utility. To illustrate the convenience of the framework, it is used to consider the definition of the option price, the appropriate treatment of option value, the valuation of risk changes, and the definition of non-use benefits under uncertainty.

Original languageEnglish (US)
Pages (from-to)283-292
Number of pages10
JournalJournal of Environmental Economics and Management
Volume14
Issue number3
DOIs
StatePublished - Sep 1987

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ASJC Scopus subject areas

  • Economics and Econometrics
  • Management, Monitoring, Policy and Law

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