The Impact of Real Options on Willingness to Pay for Mortality Risk Reductions

Publisher's full text
Niclas A Krüger
Mikael Svensson

Public investments are dynamic in nature, and decision making must account for the uncertainty, irreversibility and potential for future learning. In this paper we adapt the theory for investment under uncertainty for a public referendum setting and perform the first empirical test to show that estimates of the value of a statistical lite (VSL) from stated preference surveys are highly dependent on the inclusion of the option value. Our results indicate an option value of a major economic magnitude. This implies that previously reported VSL estimates, used in societal benefit-cost analysis of health investments, are exaggerated.

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