Landfills Sizing in Metropolitan Areas

Waste managers have often to decide whether to undertake an irreversible one-shot capital outlay and invest in a potentially over-sized facility or to proceed with sequential investments to adapt to changes and reduce potential losses. In this paper, we determine the value of managerial flexibility to decide the capacity sizing of a landfill according to the Real Option Approach. We model the investment decision as the exercise of a compound option, where an earlier investment cost represents the exercise price required to acquire the subsequent option to continue operating the project until the next stage comes due.