 Environmental risk and welfare valuation under imperfect informationYoshifumi Konishi and Jay Coggins Resource and Energy Economics, 2008, vol. 30, issue 2, 150-169 Abstract: Consumers are often uninformed, or unsure, about the ambient level of environmental risk. An optimal policy must jointly determine efficient levels of self-protection, information provision, and public risk mitigation efforts. Unfortunately, conventional welfare measures are not amenable to welfare analysis in the presence of imperfect information. We develop a theoretical welfare measure, called quasi-compensating variation, that is a natural extension of compensating variation (CV). We show that this welfare measure offers not only a money metric of the "value of information," but also a means to appropriately evaluate the welfare effects of various policies when consumers are imperfectly informed about ambient risk. This welfare measure allows us to obtain a number of results that the traditional CV measure fails to offer. In particular, we show that the consumer's willingness to pay for a (small) environmental risk reduction is higher for those who underestimate ambient risk than for those who overestimate or are perfectly informed if the marginal return to self-protection increases with ambient risk. Date: 2008 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:resene:v:30:y:2008:i:2:p:150-169 Access Statistics for this article Resource and Energy Economics is currently edited by J. F. Shogren and S. Smulders More articles in Resource and Energy Economics from Elsevier |
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