Behavior under Uncertainty and Its Implications for Policy.
Abstract
A key tool in the modern analysis of policy is benefit-cost analysis. The underlying theory is that of notion of economic surplus. Without going into technical details, the essential steps in the actual calculation of a surplus depend on using choices made in one context to infer choices that might be made in different contexts. If we find how much individuals are willing to pay to reduce time spent in going to work by one method,. e.g., buying automobiles or moving closer to work, we infer that another method of achieving the same saving of time, e.g., mass transit or wider roads, will be worth the same amount. Frequently, indeed, we extrapolate, or interpolate; if it can be shown that the average individual will pay $1,000 a year more in rent to reduce his or her transit time by 30 minutes, we infer that a reduction of 15 minutes is worth $500.
Document Details
- Document Type
- Technical Report
- Publication Date
- Feb 01, 1983
- Accession Number
- ADA131637
Entities
People
- Kenneth J. Arrow
Organizations
- Stanford University