WWRC 94-23
Probabilistic Evaluations of Economic Merit of Water
Resource Projects
Abstract
The presence of uncertainties in assessing benefits and costs detracts from deterministic
economic evaluation. This paper examines three probabilistic economic evaluation procedures:
Stochastic dominance, expected gain-confidence limit, and Hurwicz criterion. Their relative performances
are evaluated through an example. Furthermore, the paper investigates the effects of (1)
distributional assumptions of benefit and cost items, (2) uncertainty in project life, and (3) distribution
of net present value on the project selection.
Key words: uncertainty, probabilistic analysis, economic analysis
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