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Title:The Dixit-Pindyck and the Arrow-Fisher-Hanemann-Henry option values are not equivalent PDF Logo
Authors:Mensink, Paul
Requate, Till
Issue Date:2003
Series/Report no.:Economics working paper / Christian-Albrechts-Universität Kiel, Department of Economics 2003,09
Abstract:Fisher [2000, this journal] offers a unifying framework for two concepts of (quasi-) option value suggested by Arrow, Fisher, Hanemann, and Henry (AFHH) on the one hand, and by Dixit and Pindyck (DP) on the other, and claims these two concepts to be equivalent. We show that this claim is not correct and point out the flaws in Fisher's proof. We further suggest a decomposition of the DP option value into two components, one of which corresponds exactly to the AFHH option value which captures the value of obtaining new information, and a second one which captures the postponement value irrespective of uncertainty.
Subjects:option value
quasi option value
decision under uncertainty
irreversible investment
JEL:D81
Q20
Persistent Identifier of the first edition:urn:nbn:de:101:1-20091006350
Document Type:Working Paper
Appears in Collections:Economics Working Papers, Department of Economics, CAU Kiel

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