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Huge Capacity Planning and Resource Pricing for Pioneering Projects

In: Modeling Uncertainty

Author

Listed:
  • David Porter

    (George Mason University)

Abstract

Pioneering projects are systems that are designed and operated with new, virtually untested, technologies. Thus, decisions concerning the capacity of the initial project, its expansion over time and its operations are made with uncertainty. This is particularly true for NASA’s earth orbiting Space Station. A model is constructed that describes the input-output structure of the Space Station in which cost and performance is uncertain. It is shown that when there is performance uncertainty the optimal pricing policy is not to price at expected marginal cost. The optimal capacity decisions require the use of contingent contracts prior to construction to determine the optimal expansion path.

Suggested Citation

  • David Porter, 2002. "Huge Capacity Planning and Resource Pricing for Pioneering Projects," International Series in Operations Research & Management Science, in: Moshe Dror & Pierre L’Ecuyer & Ferenc Szidarovszky (ed.), Modeling Uncertainty, chapter 0, pages 285-300, Springer.
    • Handle: RePEc:spr:isochp:978-0-306-48102-4_14
    DOI: 10.1007/0-306-48102-2_14
    as

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