Insights into Robustness as a Criterion to Support Cost-Benefit Analysis of Supply-Enhancing Investments under Uncertainty. Part II – Investment Evaluation and Robustness Appraisal

Claudio Arena (), Marcella Cannarozzo and Giorgio Gullotti
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Claudio Arena: Università degli Studi di Palermo, Dipartimento di Ingegneria
Marcella Cannarozzo: Università degli Studi di Palermo, Dipartimento di Ingegneria
Giorgio Gullotti: Università degli Studi di Palermo, Dipartimento di Ingegneria

Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), 2025, vol. 39, issue 14, No 16, 7709-7725

Abstract: Abstract After shaping, in the companion paper, an uncertainty environment where to embed investment appraisal, in this paper we intend to demonstrate how robustness criteria can be used to investigate the behaviour of different investment alternatives in this environment, in a cost-benefit analysis framework. The performance indicator is the NPV (Net Present Value) that also accounts for the life-cycle costs of the alternatives. As an example, three supply-enhancing investments to increase water resources availability, in a part of the multi-purpose water supply system of the Southern Apennine River Basin District (Italy), are evaluated. The effect of each of three identified alternatives is assessed through a simulation model of the system, described in the companion paper, that allows the evaluation of the benefits as the difference between scarcity costs with and without the investment in each of the 486 scenarios considered. Robustness is evaluated with reference to various metrics such as maxi-max, maxi-min, regret-related metrics, and satisficing metrics. The application shows that valuable insights can be gained by systematically comparing the alternatives according to the different robustness criteria: for instance, the investment with the seemingly worst NPV in an evaluation framework ignoring uncertainty, due to its high investment and operation costs, proves to be the second-best option when uncertainty surrounding the supply-demand balance is considered, as it turns out to be the best-performing option in a set of critical scenarios that have an overall non-negligible occurrence probability.

Keywords: Water resources systems; Droughts; Cost-Benefit analysis; Uncertainty; Robustness (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s11269-025-04314-3

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