Testing Value vs Waiting Value in Environmental Decisions under Uncertainty

Giuseppe Attanasi and Aldo Montesano

No 10-154, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: This paper introduces the concept of the Testing Value into the analysis of environmental decisions under uncertainty and irreversibility. This value emerges in situations where the probability of receiving information concerning future economic benefits and costs of development depends on the level of development carried out. We show that when information may be acquired also exogenously, the Testing Value could push a risk-neutral decision maker to preserve more in the present and eventually in the future. The reason is that the Testing Value often leads to a only partial development of the environmental asset; on the contrary, the Waiting Value (a generalization of the quasi-option value à la Arrow and Fisher (1974)) always leads to corner solutions. Althoughits existence stems from endogenous information, surprisingly enough, the Testing Value is positively related to the probability of acquiring information exogenously.

Keywords: Testing value; waiting value; exogenous and endogenous information; irreversibility (search for similar items in EconPapers)
JEL-codes: D61 D81 Q32 (search for similar items in EconPapers)
Date: 2010-04
New Economics Papers: this item is included in nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Testing Value vs Waiting Value in Environmental Decisions under Uncertainty (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:22661

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