10.2190/V6Q9-2W6H-T533-MHGD V6Q92W6HT533MHGD 3 The Decision to Exploit an Irreplaceable Resource in an Uncertain World 125 130 20020509 20020509 20020509 20020509 V6Q92W6HT533MHGD.pdf http://baywood.metapress.com/link.asp?target=contribution&id=V6Q92W6HT533MHGD 2 Edward M. Miller Jones School of Administration, Rice University New concepts for capital budgeting under uncertainty can be extended to exploitation of irreplaceable resources in an uncertain world. Discussion focuses on the decision to build dams in beautiful valleys where there is considerable uncertainty concerning true benefits and costs. Each decision not to build is repeatedly reviewed by successive administrators. It is shown that to avoid overbuilding the minimum acceptable benefit-cost ratio must be set above unity. The results easily extend to decisions to develop mineral resources or to utilize wilderness areas. E. Miller, Uncertainty Induced Bias in Capital Budgeting, <i>Financial Management</i>, Fall, 1978. K. C. Brown, The Rate of Return of Selected Investment Projects, <i>Journal of Finance</i>, September 1978. S. Smidt, A Bayesian Analysis of Project Post Audits, Paper presented at the TIMS/ORSA Conference on Capital Budgeting, January 1978, also in <i>Journal of Finance</i>, September 1979. E. Miller, Risk, Uncertainty and Divergence of Opinion, <i>Journal of Finance, XXXII</i>:4, pp. 1151-1167, September 1977. K. C. Brown, A Note on the Apparent Bias of Net Revenue Estimates for Capital Investment Projects, <i>Journal of Finance, 29</i>:4, pp. 1215-1216, September 1974. L. H. C. Tippet, On the Extreme Individuals and the Range of Samples Taken from a Normal Population, <i>Biometrika, XVIII</i>, pp. 365-387, 1925. J. V. Krutilla and A. C. Fisher, <i>The Economics of Natural Environments</i>, Chapt. 3 & 4, Johns Hopkins University Press, Baltimore, Maryland, 1975.