The presence of uncertainties in assessing benefits and costs detracts from deterministic economic evaluation. This paper examines three probabilistic economic evaluation procedures: stochastic dominance, expected gain-confidence limit, and Hurwicz criterion. Their relative performances are evaluated through an example. Furthermore, the paper investigates the effects of (1) distributional assumptions of benefit and cost items, (2) uncertainty in project life, and (3) distribution of net present value on the project selection.
- economic analysis
- probabilistic analysis