A multi-level Taguchi-factorial two-stage stochastic programming approach for characterization of parameter uncertainties and their interactions: An application to water resources management

•Multi-level Taguchi-factorial two-stage stochastic programming was proposed.•Parameter uncertainties and their interactions were analyzed in a systematic manner.•A variety of decision alternatives were obtained under different policy scenarios.•Taguchi’s orthogonal array design to screen out important factors.•Multi-level factorial design to detect curvature in the factor-response relationship.

This paper presents a multi-level Taguchi-factorial two-stage stochastic programming (MTTSP) approach for supporting water resources management under parameter uncertainties and their interactions. MTTSP is capable of performing uncertainty analysis, policy analysis, factor screening, and interaction detection in a comprehensive and systematic way. A water resources management problem is used to demonstrate the applicability of the proposed approach. The results indicate that interval solutions can be generated for the objective function and decision variables, and a variety of decision alternatives can be obtained under different policy scenarios. The experimental data obtained from the Taguchi’s orthogonal array design are helpful in identifying the significant factors affecting the total net benefit. Then the findings from the multi-level factorial experiment reveal the latent interactions among those important factors and their curvature effects on the model response. Such a sequential strategy of experimental designs is useful in analyzing the interactions for a large number of factors in a computationally efficient manner.