The Decision to Exploit an Irreplaceable Resource in an Uncertain World

Edward M. Miller

DOI: 10.2190/V6Q9-2W6H-T533-MHGD


New concepts for capital budgeting under uncertainty can be extended to exploitation of irreplaceable resources in an uncertain world. Discussion focuses on the decision to build dams in beautiful valleys where there is considerable uncertainty concerning true benefits and costs. Each decision not to build is repeatedly reviewed by successive administrators. It is shown that to avoid overbuilding the minimum acceptable benefit-cost ratio must be set above unity. The results easily extend to decisions to develop mineral resources or to utilize wilderness areas.

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