A risky project evaluation technique called the fuzzy real options analysis is developed to evaluate brownfield redevelopment projects. Other decision making techniques, such as multiple criteria analysis and conflict analysis, can be incorporated into fuzzy real options analysis to facilitate negotiations on brownfield redevelopment among decision makers (DMs). The value of managerial flexibility, which is important in negotiations and policy making for brownfield redevelopment, is overlooked when the traditional evaluation method, net present value (NPV), is employed. Findings of this thesis can be used to promote brownfield redevelopment, thereby helping to eliminate environmental threats and enhance regional sustainability.
A brownfield is an abandoned or underutilized property that contains, or may contain, pollutants, hazardous substances, or contaminants from previous usage, typically industrial activity. Brownfields often occur when the local economy transits from industrial to service-oriented seeking more profit. Governments actively promote brownfield redevelopment to eliminate public health threats, help economic transition, and enhance sustainability. However, developers are reluctant to participate in brownfield redevelopment because they often regard these projects as unprofitable when using classic evaluation techniques. On the other hand, case studies show that brownfield redevelopment projects can be good business opportunities for developers. An improved evaluation method is developed in order to estimate the value of a brownfield more accurately.
The main reason that makes the difference between estimates and ''actual'' values lies in the failure of the deterministic project evaluation tool to price the value of uncertainty, which leads to efforts to enhance the decision making under uncertainty. Real options modelling, which extends the ability of option pricing models in real asset evaluation, is employed in risky project evaluation because of its capacity to handle uncertainties. However, brownfield redevelopment projects contain uncertain factors that have no market price, thus violating the assumption of option pricing models for which all risks have been reflected in the market. This problem, called private risk, is addressed by incorporating fuzzy numbers into real options in this thesis, which can be called fuzzy real options. Fuzzy real options are shown to generalize the original model to deal with additional kinds of uncertainties, making them more suitable for project evaluation.
A numerical technique based on hybrid variables is developed to price fuzzy real options. We proposed an extension of Least Squares Monte-Carlo simulation (LSM) that produces numerical evaluations of options. A major advantage of this methodology lies in its ability to produce results regardless of whether or not an analytic solution exists. Tests show that the generalized LSM produces similar results to the analytic valuation of fuzzy real options, when this is possible.
To facilitate parameter estimation for the fuzzy real options model, another numerical method is proposed to represent the likelihood of contamination of a brownfield using fuzzy boundaries. Linguistic quantifiers and ordered weighted averaging (OWA) techniques are utilized to determine the likelihood of pollution at sample locations based on multiple environmental indicators, acting as a fuzzy deduction rule to calculate the triangle membership functions of the fuzzy parameters. Risk preferences of DMs are expressed as different ''ORness'' levels of OWA operators, which affect likelihood estimates. When the fuzzy boundaries of a brownfield are generated by interpolation of sample points, the parameters of fuzzy real options, drift rate and volatility, can be calculated as fuzzy numbers. Hence, this proposed method can act as an intermediary between DMs and the fuzzy real options models, making this model much easier to apply.
The values of DMs to a brownfield can be input to the graph model for conflict resolution (GMCR) to identify possible resolutions during brownfield redevelopment negotiation among all possible states, or combinations of DMs' choices. Major redevelopment policies are studied using a brownfield redevelopment case, Ralgreen Community in Kitchener, Ontario, Canada. The fuzzy preference framework and probability-based comparison method to rank fuzzy variables are employed to integrate fuzzy real options and GMCR. Insights into this conflict and general policy suggestions are provided.
A potential negotiation support system (NSS) implementing these numerical methods is discussed in the context of negotiating brownfield redevelopment projects. The NSS combines the computational modules, decision support system (DSS) prototypes, and geographic information systems (GIS), and message systems. A public-private partnership (PPP) will be enhanced through information sharing, scenario generation, and conflict analysis provided by the NSS, encouraging more efficient brownfield redevelopment and leading to greater regional sustainability.
The integrated usage of fuzzy real options, OWA, and GMCR takes advantage of fuzziness and randomness, making better evaluation technique available in a multiple DMs negotiation setting. Decision techniques expand their range from decision analysis, multiple criteria analysis, to a game-theoretic approach, contributing to a big picture on decision making under uncertainty. When these methods are used to study brownfield redevelopment, we found that creating better business opportunities, such as allowing land use change to raise net income, are more important in determining equilibria than remediation cost refunding. Better redevelopment policies can be proposed to aid negotiations among stakeholders.
| Identifer | oai:union.ndltd.org:WATERLOO/oai:uwspace.uwaterloo.ca:10012/5948 |
| Date | January 2011 |
| Creators | Wang, Qian |
| Source Sets | University of Waterloo Electronic Theses Repository |
| Language | English |
| Detected Language | English |
| Type | Thesis or Dissertation |
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