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Consumer Surplus Under Uncertainty: An Application to Dam-Reservoir Projects

Quirk, James (1985) Consumer Surplus Under Uncertainty: An Application to Dam-Reservoir Projects. Water Resources Research, 21 (9). pp. 1307-1312. ISSN 0043-1397. doi:10.1029/WR021i009p01307.

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The use of cost-benefit analysis to evaluate the net welfare payoffs from water projects has now been an established practice for many years. One of the interesting aspects of such cost-benefit studies is that water projects involve an uncertain flow of costs and benefits, arising from the stochastic nature of streamflows. Hence a basic problem for the cost-benefit analyst is that of incorporating this uncertainty into his measures of costs and benefits. In the present paper we examine the problem of computing an appropriate consumer surplus measure to evaluate water project benefits under uncertainty. Detailed treatment is given to the case in which a complete set of contingent claim markets exists in the economy as well as to the case of a spot market economy. The consumer surplus measure applicable to the contingent claim economy is a simple generalization of the measure that applies to a world of certainty, but in the case of a spot market economy there is an unobserved component of consumer benefits that limits the applicability of the usual consumer surplus measure.

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Additional Information:© 1985 American Geophysical Union. Received January 24, 1985; revised March 12, 1985; accepted April 29, 1985. Paper number 5W0388. I would like to thank an anonymous referee for his helpful suggestions concerning this paper, which represents an outgrowth of earlier work undertaken with the support of the Environmental Quality Laboratory at California Institute of Technology.
Group:Environmental Quality Laboratory
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Environmental Quality LaboratoryUNSPECIFIED
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Other Numbering System NameOther Numbering System ID
Environmental Quality LaboratoryA-168
Issue or Number:9
Record Number:CaltechAUTHORS:20140702-131252694
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Official Citation:Quirk, J. (1985), Consumer Surplus Under Uncertainty: An Application to Dam-Reservoir Projects, Water Resour. Res., 21(9), 1307–1312, doi:10.1029/WR021i009p01307
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:46639
Deposited By: Tony Diaz
Deposited On:02 Jul 2014 20:35
Last Modified:10 Nov 2021 17:28

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