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On the Valuation of Uncertainty in Welfare Analysis
Author(s) -
Chavas JeanPaul,
Mullarkey Daniel
Publication year - 2002
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1111/1467-8276.00240
Subject(s) - valuation (finance) , confusion , economics , pareto principle , microeconomics , welfare , actuarial science , value (mathematics) , contingent valuation , econometrics , public economics , computer science , willingness to pay , operations management , finance , psychology , machine learning , market economy , psychoanalysis
This article develops a general model of private and public choice under temporal uncertainty. The model incorporates the effects of risk preferences and the prospect of future learning into both the individual and aggregate valuations of public projects. The analysis provides new insights on individual valuation, its implications for benefit‐cost analysis and the characterization of Pareto‐efficiency under uncertainty. It also resolves some of the confusion in the option value and quasioption value literature.