Highway Development Decision-Making Under Uncertainty: Analysis, Critique and Advancement
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Date
2011-01-20T15:36:22Z
Authors
El-Khatib, Mayar
Journal Title
Journal ISSN
Volume Title
Publisher
University of Waterloo
Abstract
While decision-making under uncertainty is a major universal problem, its implications in the field of transportation systems are especially enormous; where the benefits of right decisions are tremendous, the consequences of wrong ones are potentially disastrous.
In the realm of highway systems, decisions related to the highway configuration (number of lanes, right of way, etc.) need to incorporate both the traffic demand and land price uncertainties. In the literature, these uncertainties have generally been modeled using the Geometric Brownian Motion (GBM) process, which has been used extensively in modeling many other real life phenomena. But few scholars, including those who used the GBM in highway configuration decisions, have offered any rigorous justification for the use of this model.
This thesis attempts to offer a detailed analysis of various aspects of transportation systems in relation to decision-making. It reveals some general insights as well as a new concept that extends the notion of opportunity cost to situations where wrong decisions could be made. Claiming deficiency of the GBM model, it also introduces a new formulation that utilizes a large and flexible parametric family of jump models (i.e., Lévy processes). To validate this claim, data related to traffic demand and land prices were collected and analyzed to reveal that their distributions, heavy-tailed and asymmetric, do not match well with the GBM model. As a remedy, this research used the Merton, Kou, and negative inverse Gaussian Lévy processes as possible alternatives.
Though the results show indifference in relation to final decisions among the models, mathematically, they improve the precision of uncertainty models and the decision-making process. This furthers the quest for optimality in highway projects and beyond.
Description
Keywords
highway development, decision making under uncertainty, real options, jump processes, infinitely divisible distributions, Lévy processes, measure theory, characteristic function, characteristic exponent, Lévy jump measure, probability measure, cádlág stochastic process, Wiener process, Poisson process, compound Poisson process, finite activity models, jump diffusion models, Merton model, Gaussian jump process, Kou model, double exponential jump process, leptokurtic, volatility smile, infinite activity models, pure jumps process, generalized hyperbolic model, modified Bessel function, negative inverse Gaussian model, geometric Brownian motion model, log-normal distribution model, normality assumption, heavy-tailed distribution, asymmetric distribution, quantile-quantile plot, Rydberg algorithm, parameter calibration, moments, cummulants, sum of squares, Monte Carlo simulation, least-squares regression, backward dynamic programming, discrete-time Markov chain, land price, traffic demand, highway service quality index, data collection, traffic volume, Annual Average Daily Traffic, Ontario Ministry of Transportation, Land Registry Office, Province of Ontario Land Registration and Information System, Freedom of Information Act, seasonality, value of transportation, types of transportation systems, importance of highway systems, transportation system development constraints, cost of wrong decisions, monetary cost, private sector cost, human cost, land expropriation, environmental cost, irreversibility cost factor, time cost factor, political cost factor, opportunity cost, opportunity cost of wrong decisions, economic cost of wrong decisions, economic cost of mis-estimation, economic profit of wrong decisions, cost of inaction, price of making right decisions, scope of decisions, rehabilitation decision, land acquisition decision, expansion decision, uncertainty modeling, land acquisition cost, expropriation cost, construction cost, material cost, Montréal-Mirabel International Airport, Pickering Airport, 407 Express Toll Route, Highway 407