Uncertainty, benefit-cost analysis, and the treatment of option value

V. Kerry Smith

Research output: Contribution to journalArticlepeer-review

28 Scopus citations


This paper proposes a new conceptual framework for defining welfare measures under uncertainty: the planned expenditure function. This function describes the locus of expenditures on contingent claims that are required to realize a given level of expected utility. To illustrate the convenience of the framework, it is used to consider the definition of the option price, the appropriate treatment of option value, the valuation of risk changes, and the definition of non-use benefits under uncertainty.

Original languageEnglish (US)
Pages (from-to)283-292
Number of pages10
JournalJournal of Environmental Economics and Management
Issue number3
StatePublished - Sep 1987

ASJC Scopus subject areas

  • Economics and Econometrics
  • Management, Monitoring, Policy and Law


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