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Managerial Spillovers in Project Selection

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  • Gambardella, Alfonso
  • Francetich, Alejandro

Abstract

Choosing a portfolio of projects to undertake is a fundamental managerial problem: from determining which units or divisions to establish within a firm, or which acquisitions or alliances to pursue, to which R&D, financial ventures, or marketing campaigns to greenlight. In this paper, we analyze the portfolio-selection problem given a budget constraint and featuring value spillover across projects. We distinguish between managerial spillover, due to the exploitation of common resources or real assets, and statistical spillover, when news about the value of a project is informative about other projects. This distinction, largely overlooked in the literature, has tangible implications for managers. Statistical spillover is consistent with decentralized project assessment and undertaking provided there is informational integration—namely, as long as information flows freely across companies’ divisions. Managerial spillover requires that projects be undertaken within the same management structure and assessed in blocks: The combined savings from passing on two projects at once may outweigh their marginal contributions. We showcase these managerial implications in the cases of R&D with product development and of a company consisting of an HQ and two divisions.

Suggested Citation

  • Gambardella, Alfonso & Francetich, Alejandro, 2018. "Managerial Spillovers in Project Selection," CEPR Discussion Papers 12946, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:12946
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    References listed on IDEAS

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    More about this item

    Keywords

    Optimization; Portfolios of real assets; Decision-making; Uncertainty; Corporate strategy;
    All these keywords.

    JEL classification:

    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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