The Choice of a Welfare Measure under Uncertainty

Richard Ready

American Journal of Agricultural Economics, 1993, vol. 75, issue 4, 896-904

Abstract: 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.

Date: 1993
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