Arrow-Fisher-Hanemann-Henry and Dixit-Pindyck Option Values Under Strategic Interactions

• Main Authors: FUJII, Tomoki, ISHIKAWA, Ryuichiro
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2013
• Subjects: Irreversibility; quasi-option value; uncertainty; value of information; Behavioral Economics; Strategic Management Policy
• Online Access: https://ink.library.smu.edu.sg/soe_research/1517; https://ink.library.smu.edu.sg/context/soe_research/article/2516/viewcontent/Arrow_fisher_Hanemann_Henry_and_Dixit_Pindyck_Option_Values_Under_Strategic_Interactions.pdf
• Institution: Singapore Management University

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.