Investments under non-stationarity: economic evaluation of adaptation pathways

• DOI: 10.1007/s10584-019-02409-6
• Publication Date: 2019-04-04T07:29:55Z
• Authors: Marjolijn Haasnoot; Maaike van Aalst; Julie Rozenberg; Kathleen Dominique; John Matthews; Laurens M. Bouwer; Jarl Kind; N. LeRoy Poff
• Keywords: Investment; Investment Decisions; Time horizon

Investment decisions about capital-intensive, long-lived infrastructure are challenging due to uncertainty their future performance, particularly if the performance is sensitive climate change. Such investments, like those made for water infrastructure, rarely evaluated over total operational lifetime, during which socio-economic and environmental changes can cause potential lock-ins reduced options choices that lead high costs transfer other options. We propose an economic evaluation framework explore adaptation pathways, or sequences of strategic investments options, be implemented needed changing conditions. A novel feature inclusion "transfer costs" associated with a switch alternative pathways allow adaptive decision-making minimize cost adjustment time. Implementing pathway-driven approach represents break most institutional processes significantly improve under compared conventional single-investment perspective. present case study on flood risk management in Netherlands show long-term consequences short-term by going beyond project cycle horizon.