TITLE

Welfare Measures when Agents can Learn: A Unifying Theory

AUTHOR(S)
Zhao, Jinhua; Kling, Catherine L.
PUB. DATE
October 2009
SOURCE
Economic Journal;Oct2009, Vol. 119 Issue 540, p1560
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
We extend Graham's (1981) welfare analysis under uncertainty to a dynamic environment where the agent can delay and obtain information. The dynamic willingness to pay locus unifies the concepts of option price, dynamic WTP, commitment costs and quasi-option value. Option price (dynamic WTP) corresponds to the ex ante WTP when the agent ignores (recognises) the learning opportunity. The commitment cost, or the difference between option price and dynamic WTP, equals the annualised and monetised quasi-option value. State contingent contracts have added value by allowing trading among agents with heterogeneous access to future information and delay opportunities.
ACCESSION #
44076621

 

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