Real Options and the WTP/WTA Disparity

Jinhua Zhao, Catherine L. Kling
November 1998  [99-WP 206]

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Suggested citation:

Zhao, J. and C.L. Kling. 1998. "Real Options and the WTP/WTA Disparity." Working paper 99-WP 206. Center for Agricultural and Rural Development, Iowa State University.


Presents a real options model of an agent's decision to purchase or sell a good under conditions of uncertainty, irreversibility, and learning over time. The agent's willingness to pay (WTP) and willingness to accept (WTA) contain both the intrinsic value of the good and an option value associated with delaying the decision until more information is available. The model explicitly demonstrates the effect that timing of an action can have on welfare measurement.