Uncertainty, Irreversibility, and Water Project Assessment

Most structural and some nonstructural water projects require significant sunk costs and lead to uncertain economic and ecological outcomes. For instance, building irrigation or flood control dam requires sizable sunk cost, an investment that is difficult to recover later. The dam faces uncertainties in terms of future rainfall, the performance of the dam’s structures and downstream levees, the economic activities that affect the demand for irrigation water or flood control, and ecological impacts, particularly the society’s valuation of these impacts. Some of these uncertainties are inherent and are difficult to reduce by gathering more information. Examples include long-range weather uncertainties, biological variations such as the natural growth rate of a fish population, and possibly levee performance. But other uncertainties can typically be mitigated by further information gathering. For example, new information naturally arrives regarding economic activities and even the valuation of the ecological impacts as more data become available.