The Measurement of Economic Uncertainty in Public Water Resource Development

Abstract

Abstract The existing benefit‐cost criteria for evaluating water resource projects are deterministic and therefore incomplete, since the uncertainty inherent in project outcomes is not considered. A Monte‐Carlo simulation approach is used to generate a mean and standard deviation for the benefits, costs, benefit‐cost ratio, and net present value for the controversial Spewrell Bluff Project. Subjective estimates defining probability distributions of project benefits and costs were obtained from the Corps of Engineers. A project selection process that includes probability considerations in the benefit‐cost criteria is recommended and several approaches for including uncertainty as a variable are suggested.