TY - JOUR
T1 - Environmental risk and welfare valuation under imperfect information
AU - Konishi, Yoshifumi
AU - Coggins, Jay S.
N1 - Copyright:
Copyright 2008 Elsevier B.V., All rights reserved.
PY - 2008/5
Y1 - 2008/5
N2 - Consumers are often uninformed, or unsure, about the ambient level of environmental risk. An optimal policy must jointly determine efficient levels of self-protection, information provision, and public risk mitigation efforts. Unfortunately, conventional welfare measures are not amenable to welfare analysis in the presence of imperfect information. We develop a theoretical welfare measure, called quasi-compensating variation, that is a natural extension of compensating variation (CV). We show that this welfare measure offers not only a money metric of the "value of information," but also a means to appropriately evaluate the welfare effects of various policies when consumers are imperfectly informed about ambient risk. This welfare measure allows us to obtain a number of results that the traditional CV measure fails to offer. In particular, we show that the consumer's willingness to pay for a (small) environmental risk reduction is higher for those who underestimate ambient risk than for those who overestimate or are perfectly informed if the marginal return to self-protection increases with ambient risk.
AB - Consumers are often uninformed, or unsure, about the ambient level of environmental risk. An optimal policy must jointly determine efficient levels of self-protection, information provision, and public risk mitigation efforts. Unfortunately, conventional welfare measures are not amenable to welfare analysis in the presence of imperfect information. We develop a theoretical welfare measure, called quasi-compensating variation, that is a natural extension of compensating variation (CV). We show that this welfare measure offers not only a money metric of the "value of information," but also a means to appropriately evaluate the welfare effects of various policies when consumers are imperfectly informed about ambient risk. This welfare measure allows us to obtain a number of results that the traditional CV measure fails to offer. In particular, we show that the consumer's willingness to pay for a (small) environmental risk reduction is higher for those who underestimate ambient risk than for those who overestimate or are perfectly informed if the marginal return to self-protection increases with ambient risk.
KW - Compensating variation
KW - Environmental risk
KW - Self-protection
KW - Value of information
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U2 - 10.1016/j.reseneeco.2007.05.002
DO - 10.1016/j.reseneeco.2007.05.002
M3 - Article
AN - SCOPUS:40649128328
SN - 0928-7655
VL - 30
SP - 150
EP - 169
JO - Resource and Energy Economics
JF - Resource and Energy Economics
IS - 2
ER -