Engineering Economist最新文献

{"title":"Economic service life of equipment under uncertain revenues: A real options approach","authors":"Kyung-Taek Kim, Donghyun An, Deok-Joo Lee","doi":"10.1080/0013791X.2021.1946226","DOIUrl":"https://doi.org/10.1080/0013791X.2021.1946226","url":null,"abstract":"Abstract Companies which utilize equipment as a critical manufacturing asset should resolve the problem of economic replacement. In this article, a case study of equipment replacement for an auto parts manufacturer is presented. We derive a formula to calculate the expected service life using a classical binomial real options model under revenue uncertainty. A sensitivity analysis shows that the initial cost of the equipment has the largest impact on the expected service life in this case study. The presented real option model is applicable to manufacturing companies which seek to the solution of economic equipment replacement under revenue uncertainty.","PeriodicalId":49210,"journal":{"name":"Engineering Economist","volume":"66 1","pages":"245 - 261"},"PeriodicalIF":1.2,"publicationDate":"2021-08-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1080/0013791X.2021.1946226","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44113127","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"The levelized cost of energy and regulatory uncertainty in plant lifetimes","authors":"David C. Rode, P. Fischbeck","doi":"10.1080/0013791X.2021.1933283","DOIUrl":"https://doi.org/10.1080/0013791X.2021.1933283","url":null,"abstract":"Abstract The levelized cost of energy is commonly used in both policymaking and capital investment decisions. It unitizes capital costs by amortizing them over an assumed asset life. The life of the asset is usually assumed to be known with certainty. But in many electric power applications, the life is both uncertain and subject to regulatory shocks. In these cases, the standard levelized cost of energy calculation is incorrect and potentially misleading. We propose a corrected version of this measure using expectation under a probability model for shortened life and show its implications for several investment and policy applications.","PeriodicalId":49210,"journal":{"name":"Engineering Economist","volume":"66 1","pages":"187 - 205"},"PeriodicalIF":1.2,"publicationDate":"2021-08-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1080/0013791X.2021.1933283","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47043615","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Letter from the editor","authors":"H. Nachtmann","doi":"10.1080/0013791X.2021.1962498","DOIUrl":"https://doi.org/10.1080/0013791X.2021.1962498","url":null,"abstract":"This issue of The Engineering Economist contains four articles that contribute to engineering economics of energy and equipment management. I would like to thank all reviewers who contributed to the peer-review process as well as area editors Sarah Ryan (former TEE editor-in-chief), Karen Bursic, Roy Kwon, and Jo Min for their contributions to this issue. The issue begins with an article entitled “The Levelized Cost of Energy and Regulatory Uncertainty in Plant Lifetimes” written by David Rode and Paul Fischbeck. In many electric power applications, the life of an asset is uncertain and subject to regulatory disruptions. However, the asset life is typically assumed to be known with certainty when calculating the levelized cost of energy. The authors present a corrected version of the standard levelized cost of energy calculation and show its implications on multiple investment and policy applications. In “Economic Feasibility of the Investment in Residential Photovoltaics System Considering the Effects of Subsidy Policies: A Korean Case,” we publish a case study by Jingu Jang, Moonkyu Seo, Giwon Nam, and Deok-Joo Lee. Government policies seek to reduce the economic burden of household photovoltaic (PV) investments and thus promote solar energy to household users. The case study performs an economic feasibility analysis of investments in residential PV systems and considers the effects of several subsidy plan alternatives using the empirical data of Korea. The results show that the residential PV investment project would be economically viable without subsidy but the payback period exceeds ten years which may be too long to convince residential users to invest in a PV system. In the third article, “Optimal Replacement, Retrofit, and Management of a Fleet of Assets under Regulations of an Emissions Trading System,” authors Amir Rajabian and Sharareh Taghipour present a model for parallel replacement and improvement for a fleet of assets to minimize both the economic costs and greenhouse gas (GHG) emissions where the emissions are limited by an emissions trading system also known as cap-and-trade. Their model considers the possibility of both banking the emission allowances or trading them in the market and is applied to data from a fleet of excavators in Ontario, Canada. The model and the findings of this case study could help firms to manage emissions and costs of their assets in a jurisdiction regulated by cap-and-trade. In the last article, Kyoung-Taek Kim, Deok-Joo Lee, and Sung-Joon Park coauthor “Economic Service Life of Equipment under Uncertain Revenues: A Real Options Approach.” The purpose of this work is to develop a binomial lattice real option model for analyzing the optimal equipment replacement considering uncertain revenue conditions over time. The authors present a numerical example to illustrate how their discrete real option model can be used to create an optimal replacement decision lattice, calculate the economic service life o","PeriodicalId":49210,"journal":{"name":"Engineering Economist","volume":"66 1","pages":"185 - 186"},"PeriodicalIF":1.2,"publicationDate":"2021-08-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42287516","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Sequel to “partitioning transaction vectors into pure investments”: A new sufficient condition for transactions to have a unique IRR and some results on the distribution of IRRs","authors":"J. Cuthbert","doi":"10.1080/0013791X.2021.1929624","DOIUrl":"https://doi.org/10.1080/0013791X.2021.1929624","url":null,"abstract":"Abstract An article by the same author in The Engineering Economist in 2018 (vol. 63(2), 143–157) proved that any transaction could be uniquely partitioned into a sequence of pure investments with strictly decreasing internal rates of return (IRRs). This article uses that result to prove a new condition for a transaction to have a unique IRR and also gives some information on how the IRRs of a transaction must be distributed.","PeriodicalId":49210,"journal":{"name":"Engineering Economist","volume":"66 1","pages":"303 - 318"},"PeriodicalIF":1.2,"publicationDate":"2021-07-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1080/0013791X.2021.1929624","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43770715","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Technical note: Modified simple average internal rate of return","authors":"Behnam Babaei S. A., A. Jassbi","doi":"10.1080/0013791X.2021.1944413","DOIUrl":"https://doi.org/10.1080/0013791X.2021.1944413","url":null,"abstract":"Abstract One of the most attractive indexes to select the best investment decision is internal rate of return (IRR) measure, but it has some significant faults both in practice and theoretically. Multiple attempts have been made to resolve the IRR challenges, but none of them are perfect. This article presents the Modified Simple Average Internal Rate of Return criterion as a profitability index for calculating a unique rate of return for all various types of cash flow streams so that obtained results are consistent with the net present value method in accept/reject decisions. The presented method is simple to compute and is capable of resolving all known IRR defects including when the resulting rate is greater than −1.","PeriodicalId":49210,"journal":{"name":"Engineering Economist","volume":"67 1","pages":"157 - 169"},"PeriodicalIF":1.2,"publicationDate":"2021-06-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1080/0013791X.2021.1944413","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47478154","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Rebalancing index tracking portfolios with cumulative sum (CUSUM) control charts","authors":"Eduardo Nesi Bubicz, Tiago Pascoal Filomena, Leonardo Riegel Sant’Anna, Eduardo Bered Fernandes Vieira","doi":"10.1080/0013791X.2021.1936320","DOIUrl":"https://doi.org/10.1080/0013791X.2021.1936320","url":null,"abstract":"Abstract In this study, we use the cumulative sum (CUSUM) control chart methodology to regulate index tracking portfolio updates over time, as we seek to make the rebalancing decision endogenous to the portfolio selection problem. We use data from two stock markets (United States and Brazil), and we estimate CUSUM based portfolios as well as portfolios using fixed rebalancing time windows. We also provide a comparison with the exponentially weighted moving average (EWMA) control chart methodology. Our findings show the suitability of CUSUM, in a dynamic condition in which we have more portfolio updates when tracking performance is poor (usually during periods when markets have more volatility) and lower updates when tracking performance is effective.","PeriodicalId":49210,"journal":{"name":"Engineering Economist","volume":"66 1","pages":"319 - 345"},"PeriodicalIF":1.2,"publicationDate":"2021-06-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1080/0013791X.2021.1936320","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45528968","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Letter from the Editor","authors":"K. Kim, Dowon Kim, Jiwoong Lee","doi":"10.1080/0013791x.2021.1923680","DOIUrl":"https://doi.org/10.1080/0013791x.2021.1923680","url":null,"abstract":"The Engineering Economist seeks submissions in a number of areas, including but not limited to capital investment analysis, financial risk management, cost estimation and accounting, cost of capital, design economics, economic decision analysis, engineering economy education, research and development, and the analysis of public policy when it is relevant to the economic investment decisions made by engineers and technology managers. This issue contains three articles that primarily contribute one of these areas, financial risk management. I would like to thank all reviewers who contributed to the peer-review process as well as associate editors Dave Enke and Sarah Ryan (former editor-in-chief) for their contributions to this issue. The issue begins with an article entitled “Average Internal Rate of Return for Risky Projects” by Gordon Hazen and one of our own area editors Carlo Magni Alberto. Their work extends prior work on average internal rate of return (AIRR) to risky capital asset projects, a domain where the IRR appears intractable. They show that an analyst can uniquely break down a risky NPV into a risk-sensitive project scale and a risk-sensitive extended AIRR, representing risky project efficiency, so that consistency with NPV for accept/reject decisions is maintained in the certainty-equivalent sense, in direct analogy to the deterministic case. This novel breakdown gives managerial insight by helping determine a risky project’s locus of uncertainty, be it the project scale, or economic efficiency, or both. In “Term Structures and Scenario-Based Social Discount Rates under Smooth Ambiguity” by Kyoung-Kuk Kim, Dowon Kim, and Jiwoong Lee, social discount rates based on the Ramsey rule are explored. The rule has been augmented in various ways in order to reflect the decision maker’s attitude toward risk and uncertainty. The authors develop a general social discount rate formula via the utility gradient method, which obtains the three-way explicit separation of risk aversion, intertemporal substitution, and ambiguity aversion. The generality of this approach enables directly applying well known growth scenarios under climate change to derive scenario-based social discount rates, which can be used as a guide in practice to assess climate change policies or related projects. In the last article, area editor Roy Kwon, David Islip, and Jason Wei coauthor “Managing Construction Risk with Weather Derivatives.” The authors state that among construction industry participants, weather has been perceived to be one of the most critical factors impacting project cash-flows. This article presents a framework that leverages stylized facts from the construction industry to motivate the use of weather derivatives in managing the non-trivial weather impacts. They show that weather derivative portfolios used for hedging purposes by the contractor can address the contractor’s aversion for losses as well as the complicated relationship between weather and con","PeriodicalId":49210,"journal":{"name":"Engineering Economist","volume":"66 1","pages":"89 - 89"},"PeriodicalIF":1.2,"publicationDate":"2021-04-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1080/0013791x.2021.1923680","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46646949","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Average internal rate of return for risky projects","authors":"Gordon B. Hazen, C. Magni","doi":"10.1080/0013791X.2021.1894284","DOIUrl":"https://doi.org/10.1080/0013791X.2021.1894284","url":null,"abstract":"Abstract The average internal rate of return (AIRR) fixes many deficiencies associated with the traditional internal rate of return (IRR), including apparent inconsistency with net present value (NPV). The AIRR approach breaks down project NPV into scale (the capital invested) and economic efficiency (the AIRR), and maintains NPV consistency for accept/reject decisions. Here we examine extensions of the AIRR to risky capital asset projects, a domain where the IRR appears intractable. We show that one can uniquely break down a risky NPV into a risk-sensitive project scale and a risk-sensitive extended AIRR, representing risky project efficiency, so that consistency with NPV for accept/reject decisions is maintained in the certainty-equivalent sense, in direct analogy to the deterministic case. This novel breakdown gives managerial insight by helping determine a risky project’s locus of uncertainty, be it the project scale, or economic efficiency, or both. In this way, risky features of competing projects can be explored in more detail, leading to insights substantiating the NPV ranking. We also show that under risk neutrality, the expected AIRR is equal to the AIRR of the expected cash flow, a property that notoriously fails for the stochastic IRR.","PeriodicalId":49210,"journal":{"name":"Engineering Economist","volume":"66 1","pages":"90 - 120"},"PeriodicalIF":1.2,"publicationDate":"2021-02-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1080/0013791X.2021.1894284","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49110589","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Letter from the Editor","authors":"H. Nachtmann","doi":"10.1080/0013791X.2021.1894008","DOIUrl":"https://doi.org/10.1080/0013791X.2021.1894008","url":null,"abstract":"I would like to begin by thanking Sarah Ryan for her dedicated service to The Engineering Economist journal. Sarah stepped down as Editor-in-Chief on December 31, 2020 after serving in this role for four years. The American Society for Engineering Education and the Institute of Industrial and Systems Engineers and our profession owe her a great debt of gratitude for her hard work, dedicated service, and professionalism with which she managed the journal. As I transition into my new role as Editor-in-Chief of The Engineering Economist journal, I will strive to uphold the high standards set by Sarah and TEE’s past editors. Specifically, I will strive to enhance the visibility and prestige of the journal by increasing the publication of special issues related to contemporary topics in capital investment analysis, expanding the multidisciplinary focus, and facilitating real-world case study dissemination. The journal seeks submissions in a number of areas, including, but not limited to: capital investment analysis, financial risk management, cost estimation and accounting, cost of capital, design economics, economic decision analysis, engineering economy education, research and development, and the analysis of public policy when it is relevant to the economic investment decisions made by engineers and technology managers. This issue contains four articles, two articles that contribute new methods for evaluating economic risk and two articles that present new approaches for assessing economic value in the energy sector. I would like to thank all reviewers who contributed to the peer-review process as well as Associate Editors Min, Bursic, Ryan, and Enke for their contributions to this issue. The issue begins with an article entitled “Pricing Real Options based on Linear Loss Functions and Conditional Value at Risk” by Kim and Park. This work expands real option analysis out of the realm of pure financial option pricing techniques by developing an alternative real option valuation based on the loss function approach. The authors present a method to determine an appropriate amount of real option premium to pay for a given level of risk tolerance and present a comprehensive example to demonstrate the computational procedures as well as economic interpretations on the outcomes. In “Socioeconomic Feasibility of Green Roofs and Walls in Public Buildings: The Case Study of Primary Schools in Portuga” by Almeida, Teot onio, Silva, and Cruz. Green infrastructure has been applied in urban areas to mitigate the negative effects of urbanization and promote the efficient use of resources. This article presents a methodology for assessing the economic value of installing green roofs and walls in public buildings, particularly primary schools. The authors apply their methodology to ten alternative green roofs/walls scenarios in two primary schools in Lisbon, Portugal. Their sensitivity analysis shows that the installation cost, aesthetic improvement and increased so","PeriodicalId":49210,"journal":{"name":"Engineering Economist","volume":"66 1","pages":"1 - 2"},"PeriodicalIF":1.2,"publicationDate":"2021-02-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1080/0013791X.2021.1894008","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41518154","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Socioeconomic feasibility of green roofs and walls in public buildings: The case study of primary schools in Portugal","authors":"C. Almeida, Inês Teotónio, C. Silva, C. Cruz","doi":"10.1080/0013791X.2020.1748255","DOIUrl":"https://doi.org/10.1080/0013791X.2020.1748255","url":null,"abstract":"Abstract Green infrastructure has been applied in urban areas to mitigate the negative effects of urbanization and promote the efficient use of resources. This study suggests a methodology for assessing the economic value of installing green roofs and green walls in public buildings, particularly in primary schools. The economic evaluation considers costs and benefits from three perspectives—(i) infrastructure, (ii) users, and (iii) environment—using three levels of analysis (i) financial, (ii) economic, and (iii) socio-environmental. The methodology is applied to ten alternative green roofs/walls scenarios in two primary schools in Lisbon, Portugal, for validation purposes. The cost-benefit analysis is carried out for a 40 and 50-year life cycle, using a 6.67% discount rate. The results show that all scenarios are feasible. The final benefit-cost ratios range between 3.01 and 34.99. A sensitivity analysis shows that the installation cost, esthetic improvement, and increased sound insulation have a significant impact on the results.","PeriodicalId":49210,"journal":{"name":"Engineering Economist","volume":"66 1","pages":"27 - 50"},"PeriodicalIF":1.2,"publicationDate":"2021-01-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1080/0013791X.2020.1748255","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42853157","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}