Using real options for urban infrastructure adaptation under climate change

Kyeongseok Kim, Sooji Ha, Hyoungkwan Kim

Research output: Contribution to journalArticlepeer-review

29 Citations (Scopus)


Climate uncertainties pose a problem for decision makers as they cannot choose and implement an effective adaptation strategy in infrastructure. An effective adaptation strategy can be derived only when the potential damage induced by climate change is well understood. This study proposed a decision-making model to evaluate the economic feasibility of the adaptation projects in an urban area. The climate scenarios and the economic and technical factors were used to calculate the volatility that reflects the potential damage reduction of an urban area. The model relies on a type of real options, called the “chooser option”, to consider managerial flexibility for long-term management of urban infrastructure. The proposed model can estimate the economic value of investment with reasonable accuracy based on the representative concentration pathway (RCP) climate scenarios. A case study involving a disaster prevention facility in Seoul, Korea was conducted to demonstrate the model's applicability. The model is expected to provide guidance for the development of effective adaptation strategies for urban infrastructure.

Original languageEnglish
Pages (from-to)40-50
Number of pages11
JournalJournal of Cleaner Production
Publication statusPublished - 2017 Feb 1

Bibliographical note

Funding Information:
This work was supported by grants from the National Research Foundation of Korea funded by the Korean government (MSIP) (No. 2011-0030040 and NRF-2014R1A2A1A11052499). We would like to thank Seungik Oh for his assistance in collection of precipitation data.

Publisher Copyright:
© 2016 Elsevier Ltd

All Science Journal Classification (ASJC) codes

  • Renewable Energy, Sustainability and the Environment
  • Environmental Science(all)
  • Strategy and Management
  • Industrial and Manufacturing Engineering


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