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Optimal Management of a Research and Development Project

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Author Info

  • Robert E. Lucas, Jr.

    (Carnegie-Mellon University)

Abstract

This paper offers a series of models designed to aid in the evaluation and control of an individual research and development project. The project under consideration is assumed to involve costs incurred over a period [0, T] and a return earned at T (or discounted to T) when the project is completed. In two of the models discussed below, the completion time T is regarded as known; in two others, T is taken to be a random variable with a known distribution. In two models, the costs per unit of time of operating the project are assumed to be fixed; in the other two, costs are variable, with increased expenditure resulting in a decreased completion time. Each of the four possible combinations of assumptions is treated in a separate section. The last section contains a summary and discussion of results.

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File URL: http://dx.doi.org/10.1287/mnsc.17.11.679
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Bibliographic Info

Article provided by INFORMS in its journal Management Science.

Volume (Year): 17 (1971)
Issue (Month): 11 (July)
Pages: 679-697

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Handle: RePEc:inm:ormnsc:v:17:y:1971:i:11:p:679-697

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Cited by:
  1. Eric Nævdal, 2003. "Dynamic Optimisation in the Presence of Threshold Effects when the Location of the Threshold is Uncertain With an Application to a Possible Disintegration of the Western Antarctic Ice Sheet," Working Papers 143, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics..
  2. Flavio Toxvaerd, 2003. "A Theory of Optimal Deadlines," Discussion Paper Series dp357, The Center for the Study of Rationality, Hebrew University, Jerusalem.
  3. Frank R. Lichtenberg, 1988. "IR&D Project Data and Theories of R&D Investment," NBER Working Papers 2720, National Bureau of Economic Research, Inc.
  4. Gene M. Grossman & Carl Shapiro, 1985. "Optimal Dynamic R&D Programs," NBER Working Papers 1658, National Bureau of Economic Research, Inc.
  5. Kanniainen, Vesa, 1991. "Optimal Production of Innovations Under Uncertainty," Discussion Papers 348, The Research Institute of the Finnish Economy.
  6. Naevdal, Eric, 2006. "Dynamic optimisation in the presence of threshold effects when the location of the threshold is uncertain - with an application to a possible disintegration of the Western Antarctic Ice Sheet," Journal of Economic Dynamics and Control, Elsevier, vol. 30(7), pages 1131-1158, July.
  7. Francisco Ruiz-Aliseda & Jianjun Wu, 2007. "Irreversible investment in stochastically cyclical markets," Economics Working Papers 1018, Department of Economics and Business, Universitat Pompeu Fabra.
  8. Eymen Errais & Jeffrey Sadowsky, 2005. "Valuing Pilot Project Investments in Incomplete Markets : A Compound Option Approach," Computing in Economics and Finance 2005 73, Society for Computational Economics.

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