Abstract

The transport of hazardous material can involve the occurrence of catastrophes, particularly when multiple transport trips are made. This article shows how a corporation can estimate the likelihood of being able to make a profit from a large number of such trips, with due allowance being included for the potential of a catastrophic event. The main emphasis is on estimating and updating probabilities of catastrophe based on information from prior trips. In addition, a quantitative procedure is developed to allow a corporation to decide whether it is better to buy out of a contract to transport hazardous material based on anticipated revenues, including the hazard potential for a catastrophe. Several numerical examples are provided to show how such estimating procedures operate in practice.

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