TY - JOUR
T1 - Quasi-option value under strategic interactions
AU - Fujii, Tomoki
AU - Ishikawa, Ryuichiro
N1 - Funding Information:
We thank Shigeru Matsumoto, Linda Nostbakken, Tetsuro Okazaki, Yasuyuki Sawada, Takeshi Shimamura, Takayoshi Shinkuma, and a referee, Fujii received SMU Research Grant ( 10-C244-SMU-001 ) and partial support form the Japanese Economic Research Foundation. Ishikawa received Grants-in-Aid for Young Scientists (B) , No. 21730151 .
PY - 2012/1
Y1 - 2012/1
N2 - We consider a simple two-period model of irreversible investment under strategic interactions between two players. In this setup, we show that the quasi-option value may cause some conceptual difficulties. In case of asymmetric information, decentralized investment decisions fail to induce first-best allocations. Therefore a regulator may not be able to exercise the option to delay the decision to develop. We also show that information-induced inefficiency may arise in a game situation and that under certain assumptions inefficiency can be eliminated by sending asymmetric information to the players, even when the regulator faces informational constraints. Our model is potentially applicable to various global environmental problems.
AB - We consider a simple two-period model of irreversible investment under strategic interactions between two players. In this setup, we show that the quasi-option value may cause some conceptual difficulties. In case of asymmetric information, decentralized investment decisions fail to induce first-best allocations. Therefore a regulator may not be able to exercise the option to delay the decision to develop. We also show that information-induced inefficiency may arise in a game situation and that under certain assumptions inefficiency can be eliminated by sending asymmetric information to the players, even when the regulator faces informational constraints. Our model is potentially applicable to various global environmental problems.
KW - Biodiversity
KW - Irreversibility
KW - Quasi-option value
KW - Uncertainty
KW - Value of information
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U2 - 10.1016/j.reseneeco.2011.09.002
DO - 10.1016/j.reseneeco.2011.09.002
M3 - Article
AN - SCOPUS:80054091531
SN - 0928-7655
VL - 34
SP - 36
EP - 54
JO - Resources and Energy Economics
JF - Resources and Energy Economics
IS - 1
ER -