Economic uncertainties in water resources project design

Abstract

Economic uncertainty programing (Ecup) is a method which enables decision makers to analyze economic uncertainties in the design of water resources systems separately from hydrologic uncertainties. Ecup distinguishes between economic and hydrologic variables in the expression of a payoff or objective function. The economic variables, assumed to have been estimated at discrete points only, are treated as random variables. A postulated joint probability distribution of these variables is used to estimate by Monte Carlo simulation the distribution of payoff resulting from a project. The worth of perfect information or expected opportunity loss is calculated. In a case study the problem of choosing among flood protection levees of different heights is examined. The random economic factors considered are the flood losses and construction costs. The sensitivity to various degrees of error correlation and loss uncertainty is analyzed. It is found that a relatively small uncertainty in the economic estimates of the payoff function may cause considerable variance in both the distribution of benefits to be expected from a levee and the height of the optimal levee.