Environmental Valuation under Dynamic

Jinhua Zhao, Catherine L. Kling
January 2002  [02-WP 292]

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Suggested citation:

Zhao, J. and C.L. Kling. 2002. "Environmental Valuation under Dynamic." Working paper 02-WP 292. Center for Agricultural and Rural Development, Iowa State University.


The paper presents two simple models of dynamic consumer behavior, both taking into consideration the implications for welfare measurement when agents can delay transactions while obtaining additional information. One model studies the effect when a purchased good is non-perishable and can be consumed in the future, while the other model introduces a perishable good, implying that the quantity of consumption can vary in each period. Even in the case of the perishable item, the availability of information at the time of the consumption decision has important implications for welfare measurement. Agents who must make a decision at the present but know that additional information will be available later may change their income allocation to take advantage of the future information. When this leads to the capture of different information sets at these different times, welfare assessment may be (but is not necessarily) inconsistent with the empirical evidence and may be inappropriate for use in policy valuation.

Keywords: intertemporal welfare measures, welfare measurement, willingness to pay.