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Reversibility and switching options values in the geological disposal of radioactive waste

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  • Oana Ionescu
  • Sandrine Spaeter

Abstract

This article offers some economic insights for the debate on the reversible geological disposal of radioactive waste. Irreversibility due to large sunk costs, an important degree of flexibility and several sources of uncertainty are taken into account in the decision process relative to the radioactive waste disposal. We draw up a stochastic model in a continuous time framework to study the decision problem of a reversible repository project for the radioactive waste, with multiple disposal stages. We consider that the value of reversibility, related to the radioactive waste packages, is jointly affected by economic and technological uncertainty. These uncertainties are modeled, first, by a 2-Dimensional Geometric Brown- ian Motion, and, second, by a Geometric Brownian Motion with a Poisson jump process. A numerical analysis and a sensitivity study of various parameters are also proposed.

Suggested Citation

  • Oana Ionescu & Sandrine Spaeter, 2011. "Reversibility and switching options values in the geological disposal of radioactive waste," Working Papers of BETA 2011-13, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  • Handle: RePEc:ulp:sbbeta:2011-13
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    File URL: http://www.beta-umr7522.fr/productions/publications/2011/2011-13.pdf
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    Keywords

    radioactive waste; reversibility; switching; real option theory.;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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