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Resource allocations when projects have ranges of increasing returns

Author

Listed:
  • Catherine Bobtcheff
  • Christian Gollier
  • Richard Zeckhauser

Abstract

A fixed budget must be allocated to a finite number of different projects with uncertain outputs. The expected marginal productivity of capital in a project first increases then decreases with the amount of capital invested. Such behavior is common when output is a probability (of escaping infection, succeeding with an R&D project…). When the total budget is below some threshold, it is invested in a single project. Above this cutoff, the share invested in a project can be discontinuous and non-monotone in the total budget. Above an upper cutoff, all projects receive more capital as the budget increases.
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Suggested Citation

  • Catherine Bobtcheff & Christian Gollier & Richard Zeckhauser, 2008. "Resource allocations when projects have ranges of increasing returns," Journal of Risk and Uncertainty, Springer, vol. 37(1), pages 93-93, August.
    • Handle: RePEc:kap:jrisku:v:37:y:2008:i:1:p:93-93
    DOI: 10.1007/s11166-008-9046-9
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    References listed on IDEAS

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    1. Roberts, Kevin & Weitzman, Martin L, 1981. "Funding Criteria for Research, Development, and Exploration Projects," Econometrica, Econometric Society, vol. 49(5), pages 1261-1288, September.
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    JEL classification:

    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General

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