Environmental valuation with imperfect information - The case of the random utility model

This paper considers welfare analysis with the random utility model (RUM) when perceptions of environmental quality differ from objective measures of environmental quality. Environmental quality is assumed to be an experience good, so that while perceptions of quality determine choices, ex post utility is determined by objective quality. Given this assumption, I derive a measure of the welfare impact of changes in environmental quality, and I show how this new welfare measure differs from the traditional welfare measure developed by Hanemann (1982). This new welfare measure provides an approach to measuring the value of information about environmental quality within the framework of the random utility model.