FACULTY AND RESEARCH

The remediation of contaminated sites is often subject to substantial cost overruns. This persistent discrepancy between estimated and realized costs is chiefly responsible for misguided land use and wasteful delays in the reconversion of former industrial sites. In order to deal with incomplete information and uncertainty in this context, this paper draws on stochastic modelling and mathematical finance methods. We show that relatively simple and usable formulas can then be derived for better assessing cleanup strategies. These formulas apply to generic remediation technologies and scenarios. They are robust to misspecification of key parameters (like the effectiveness of a prescribed treatment). They also yield practical rules for decision making and budget provisioning.