Abstract
Theoretical models for estimating individuals' values for sure improvements in environmental quality are well developed. These models can be classified as being based on averting behavior, hedonic prices, or weak complementarity. Some of these models have also been applied to the task of valuing changes in risk based on expected utility theory. This article provides a systematic development of these models for changes in either the probability or the magnitude of an uncertain event and shows that the derived expressions for individual marginal willingness to pay can be generalized to nonexpected utility preferences as long as the index of preferences is continuous, convex, and twice differentiable.
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I began this work while visiting at the Robert M. LaFollette Institute of Public Affairs, University of Wisconsin-Madison. I am grateful to Robert H. Haveman, the Director, for the opportunity to work there. I also want to acknowledge the very helpful discussions I have had with Maureen L. Cropper, Winston Harrington, Raymond Kopp, Paul Portney, and Kerry Smith without implicating them in any of the possible errors or deficiencies that remain in this article. A referee also provided useful comments.
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Freeman, A.M. Indirect methods for valuing changes in environmental risks with nonexpected utility preferences. J Risk Uncertainty 4, 153–165 (1991). https://doi.org/10.1007/BF00056123
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DOI: https://doi.org/10.1007/BF00056123