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The Choice of a Welfare Measure under Uncertainty
Author(s) -
Ready Richard C.
Publication year - 1993
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 - 10.2307/1243977
Subject(s) - welfare , measure (data warehouse) , economics , payment , actuarial science , microeconomics , willingness to pay , cost–benefit analysis , public economics , computer science , finance , ecology , database , market economy , biology
Use of option price as a welfare measure when conducting a benefit‐cost analysis under uncertainty is appropriate only if the project under consideration will have no impact on the allocation of risk among individuals. Use of the willingness‐to‐pay locus as a benefit measure is appropriate only if the project will result in an efficient allocation of risk. A more general welfare measure is proposed, maximum agreeable payment, that correctly measures the benefits and costs of any project.