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Project selection with sets of mutually exclusive alternatives

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  • Minken, Harald

Abstract

We study the problem to maximise the net economic benefit of an investment plan by selecting from a portfolio of candidate projects within a given budget constraint. As is well known, with independent projects the economic efficiency of the entire investment plan is maximised if projects are selected according to their benefit-cost ratio until the budget is exhausted. Often, however, the planning of a project involves a stage where a set of alternative concepts or designs are considered. A best alternative is chosen, and the plan is composed from the pool of all such best alternatives. This procedure violates the assumptions underlying the benefit-cost ratio criterion.

Suggested Citation

  • Minken, Harald, 2016. "Project selection with sets of mutually exclusive alternatives," Economics of Transportation, Elsevier, vol. 6(C), pages 11-17.
    • Handle: RePEc:eee:ecotra:v:6:y:2016:i:c:p:11-17
    DOI: 10.1016/j.ecotra.2016.06.001
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    References listed on IDEAS

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    1. James H. Lorie & Leonard J. Savage, 1955. "Three Problems in Rationing Capital," The Journal of Business, University of Chicago Press, vol. 28, pages 229-229.
    2. Weingartner, Hm, 1963. "The Excess Present Value Index - A Theoretical Basis And Critique," Journal of Accounting Research, Wiley Blackwell, vol. 1(2), pages 213-224.
    3. H. Martin Weingartner, 1966. "Capital Budgeting of Interrelated Projects: Survey and Synthesis," Management Science, INFORMS, vol. 12(7), pages 485-516, March.
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    Cited by:

    1. Odeck, James & Kjerkreit, Anne, 2019. "The accuracy of benefit-cost analyses (BCAs) in transportation: An ex-post evaluation of road projects," Transportation Research Part A: Policy and Practice, Elsevier, vol. 120(C), pages 277-294.
    2. Halse, Askill Harkjerr & Fridstrøm, Lasse, 2019. "Explaining low economic return on road investments. New evidence from Norway," MPRA Paper 94389, University Library of Munich, Germany.
    3. Unutmaz Durmuşoğlu, Zeynep Didem, 2018. "Assessment of techno-entrepreneurship projects by using Analytical Hierarchy Process (AHP)," Technology in Society, Elsevier, vol. 54(C), pages 41-46.

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    More about this item

    Keywords

    Project selection; Mutually exclusive projects D61;

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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