The option to abandon: Stimulating innovative, groundwater remediation technologies characterized by technologies and uncertainty

T. Compernolle, S. van Passel, K.J.M. Huisman, P.M. Kort

Research output: Contribution to journalArticleScientificpeer-review

5 Citations (Scopus)

Abstract

Many studies on technology adoption demonstrate that uncertainty leads to a postponement of investments by integrating a wait option in the economic analysis. The aim of this study however is to demonstrate how the investment in new technologies can be stimulated by integrating an option to abandon. Furthermore, this real option analysis not only considers the ex ante decision analysis of the investment in a new technology under uncertainty, but also allows for an ex post evaluation of the investment. Based on a case study regarding the adoption of an innovative groundwater remediation strategy, it is demonstrated that when the option to abandon the innovative technology is taken into account, the decision maker decides to invest in this technology, while at the same time it determines an optimal timing to abandon the technology if its operation proves to be inefficient. To reduce uncertainty about the effectiveness of groundwater remediation technologies, samples are taken. Our analysis shows that when the initial belief in an effective innovative technology is low, it is important that these samples provide correct information in order to justify the adoption of the innovative technology.
Original languageEnglish
Pages (from-to)63-74
Number of pages12
JournalScience of the Total Environment
Volume496
DOIs
Publication statusPublished - 15 Oct 2014

Keywords

  • Groundwater remediation
  • investment decision
  • real options
  • technology
  • uncertainty

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