Water Resource Risk and Technology Investment under Uncertainty

By August 1, 2009Library

By John Rice, Peter Adriaens, Gautam Kaul, Christian Lastoskie, Nate Troup, Oneida Ann Watson, and Pu Chen.
Faculty Advisors: Professor Peter Adriaens, Professor Gautam Kaul, and Professor Michael Moore.

In their research report, Water Resource Risk and Technology Investment under Uncertainty (2009), John Rice, Erb ’09, and his team explored the use of an alternative valuation technique that applies “real option thinking” to the evaluation of an investment in water-saving cooling technology at the Allen Steam Station in the Catawba River basin of North and South Carolina. The technology is designed to reduce the plant’s dependence on large quantities of water for cooling operations, but involves large capital costs. The team noted that the flexibility of managers is an important criterion for making decisions regarding sunk cost investments, and firms should evaluate investments with techniques that incorporate this option value.
Read the Abstract on Deep Blue (html)

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