Date: 1995
Type: Thesis
Option value and irreversibility effect : an experimental approach
Florence : European University Institute, 1995, EUI, ECO, PhD Thesis
RAUCHS, Alexandra, Option value and irreversibility effect : an experimental approach, Florence : European University Institute, 1995, EUI, ECO, PhD Thesis - https://hdl.handle.net/1814/5046
Retrieved from Cadmus, EUI Research Repository
Some time ago, I presented part of this dissertation at a conference on applied microeconomics in Tunisia and came across a simple example that illustrates the concepts of irreversibility effect and option value. Conference participants were informed by the hotel director that the town's beach should be avoided as it had been polluted over the last decade by a chemical plant producing agricultural fertilizers. Consider an economic agent endowed with a beach and considering two alternative uses for his property. The agent could devote the beach to building a factory which can immediately provide him with a guaranteed stream of profits but will irreversibly pollute the beach so that it can no longer be used for tourism. On the other hand the owner can also keep the beach in its original state and advertise for tourists to come next season. While the benefits from the factory are known with certainty, the benefits from tourism are uncertain: they depend on the uncertain state of nature in the following season (either High Tourism or Low Tourism). Note that while the factory will immediately start paying at a constant rate in the first period, keeping the beach for tourists pays nothing at first and an uncertain return in the future depending on how many tourists choose to come.
Additional information:
Defence date: 10 February 1995; Examining Board: Prof. Pierre Dehez, Université Catholique de Louvain ; Prof. Claude Henry, Ecole Polytechnique Paris ; Prof. Alan Kirman, E.U.I., Supervisor ; Prof. Louis Phlips, E.U.I. ; Prof. Marc Willinger, BETA, Strasbourg; PDF of thesis uploaded from the Library digitised archive of EUI PhD theses completed between 2013 and 2017
Cadmus permanent link: https://hdl.handle.net/1814/5046
Series/Number: EUI; ECO; PhD Thesis
Publisher: European University Institute