Option Demand Revisited

Michael Krashinsky

Public Finance Review, 1987, vol. 15, issue 4, 460-471

Abstract: Weisbrod argues that private commodities for which demand is infrequent and uncertain and for which disinvestment is irrevocable may involve a market failure that he calls option demand. He has identified an important phenomenon, but his analysis is somewhat flawed. If entrepreneurs can price discriminate perfectly, as Weisbrod assumes, there can be no value in options to purchase. Nonetheless, the goods he describes do involve market failures: inability to price discriminate and the free rider problems associated with public goods. Thus option demand remains a useful concept.

Date: 1987
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Persistent link: https://EconPapers.repec.org/RePEc:sae:pubfin:v:15:y:1987:i:4:p:460-471

DOI: 10.1177/109114218701500407

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