Economic worth of hydrologic data in project design: An application to regional energy development

The linkage between the benefits to a regional economy from a water-dependent industry and the statistical uncertainty of the water supply that is needed in the production process is analyzed using a Bayesian scheme of expected-expected benefits of hydrologic data. In this analysis, expected benefits are calculated using anticipated streamflow data and these benefits are averaged over all possible data values. The increase in these average expected benefits is subsequently compared to the costs of obtaining the data and benefits foregone by delaying the project to collect the data. Thus, the value of collecting the data may be determined.

A Leontief type production function is assumed for an oil shale retorting plant. The economic impact of hydrologic uncertainty is investigated by examining potential changes in plant output along with changes in regional incomes which are calculated by means of a regional input-output model. Alternatives for reducing the uncertainty included establishing water discharge measuring stations, transferring streamflow information from one site to another via regionalization, and a combination of both. Given a specific alternative, the optimum time period for data collection was found. Regionalization considered statistical properties of network designs based on simulated regression analysis.