We extend the Arrow–Fisher–Hanemann–Henry (AFHH) and Dixit–Pindyck (DP) option values to a game situation. By reinterpreting the AFHH option value as a change in the surplus from conservation because of the prospect of future information, we deal with a conceptual difficulty associated with the AFHH option value in the presence of strategic interactions. We then introduce the DP option value into a game situation. We show that the equivalence between the expected value of information and the DP option value in the standard model does not hold under strategic interactions.
Irreversibility, quasi-option value, uncertainty, value of information
Econometrics | Finance
Strategic Behavior and the Environment
FUJII, Tomoki and ISHIKAWA, Ryuichiro.
Arrow-Fisher-Hanemann-Henry and Dixit-Pindyck Option Values Under Strategic Interactions. (2013). Strategic Behavior and the Environment. 3, (3), 169-183. Research Collection School Of Economics.
Available at: http://ink.library.smu.edu.sg/soe_research/1517
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