Reference no: EM132192160

Environment Canada (EC) is charged with investigating complaints regarding industrial pollution, and issuing citation to prevent recurrences, as it sees fit. Based on the region, it has full discretion to investigate or not, to issue citation or not, based on its analyses. Following are the facts for a particular region. A complaint is investigated by sending a “patrol” of three experts to the site of the alleged offender. By consensus the patrol renders one of three opinions: a low, medium or high level of pollution. Analysis of the data shows that these opinions are 80% correct. The other 20% of the time, each of the two other options have a 10% chance of being true. It costs EC $490,000 to maintain this patrolling system, over the planning horizon. With or without an investigation, EC can choose to ignore the situation, i.e. not issue a citation, in which case the costs over the planning horizon are assessed to be 0M$, 8M$ and 25M$, depending on the level of pollution. If it issues a citation then these costs are changed to 3M$ (up from 0 due to monitoring costs), 5M$ and 10M$. Once a complaint is received, the probabilities of low, medium and high levels of pollution are 0.5, 0.4 and 0.1 respectively. An expected cost criterion is assumed to be valid for this analysis.

a) For which patrol opinions should EC issue a citation?

b) Should EC issue citations without investigation?

c) Should EC maintain the patrol system in this region?