Real Options and Environmental Policies: The Good, the Bad, and the Ugly

Justus Wesseler and Jinhua Zhao

Annual Review of Resource Economics, 2019, vol. 11, issue 1, 43-58

Abstract: The literature on real options shows that irreversibilities, uncertainties about future benefits and costs, and the flexibility in decision making generate benefits and costs of delaying immediate action. When applied to government policy making, real option models can lead to efficient policies that take full account of these trade-offs, but they can also cause strategic behavior that tries to delay policies through influencing important elements such as downside risks. This contribution reviews the latest developments in real option–based policy research by looking at what we know about the benefits from waiting (the good), the costs from waiting (the bad), and how strategic behavior can influence policies (the ugly). Much has been said in the literature about the good and the bad, but more work is needed to study the ugly aspects of real option–driven policies.

Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
https://doi.org/10.1146/annurev-resource-100518-094140
Full text downloads are only available to subscribers. Visit the abstract page for more information.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:anr:reseco:v:11:y:2019:p:43-58

Ordering information: This journal article can be ordered from
http://www.annualreviews.org/action/ecommerce

DOI: 10.1146/annurev-resource-100518-094140

Access Statistics for this article

More articles in Annual Review of Resource Economics from Annual Reviews Annual Reviews 4139 El Camino Way Palo Alto, CA 94306, USA.
Bibliographic data for series maintained by http://www.annualreviews.org ().