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Environmental Geosciences, V.
Limiting risk in environmental problems: Corporate budget constraints and minimum involvement
1Department of Geological Sciences, University of South Carolina, Columbia, South Carolina 29208
2Department of Geological Sciences, University of South Carolina, Columbia, South Carolina 29208; [email protected]
Ian Lerche is a professor in the Department of Geological Sciences at the University of South Carolina, Columbia. He specializes in physical and economic aspects of gas and oil exploration and has coauthored over 18 books. He is a recipient of, among others, the Levorsen Award from AAPG, the 1991 Nordic Professor of Petroleum Geology Award, and the 19961997 French Academy of Science Professor of Geology Award.
Evan K. Paleologos is an associate professor in the Department of Geological Sciences at the University of South Carolina, Columbia. He specializes in ground-water hydrology and decision-making problems. He has coauthored two monographs on environmental risk analysis topics. The author of more than 40 publications, he is serving on the editorial board of two scientific journals and has organized several international conferences.
The authors would like to thank E. D. Guy for his helpful suggestions that improved our manuscript. Particular thanks go to the Alexander von Humboldt Stiftung and the University of Halle-Wittenberg for their generous support during a sabbatical year at Halle for I. Lerche, which enabled this paper to be completed.
For a given opportunity in which a company can invest to perform environmental remediation for profit, the influences of value, cost, success probability, and corporate risk tolerance provide an optimal working interest (OWI) that should be taken to maximize the risk-adjusted value (RAV). When several opportunities are available, but when the total budget is insufficient to take OWI in each, an analytical procedure is undertaken for optimizing the RAV of the total portfolio; the relevant working interests are also derived based on a cost-exposure constraint. Several numerical illustrations will exhibit the use of the method under different budget conditions and with different numbers of available opportunities. The result is that the computations of portfolio balancing can be done quickly using the analytical expressions presented here, thereby providing rapid assessments of environmental opportunities and their worth.
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