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Resource Allocation When Projects Have Ranges of Increasing Returns

Author

Listed:
  • Bobtcheff, Catherine

    (Toulouse School of Economics)

  • Gollier, Christian
  • Zeckhauser, Richard

    (Harvard U)

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.

Suggested Citation

  • Bobtcheff, Catherine & Gollier, Christian & Zeckhauser, Richard, 2008. "Resource Allocation When Projects Have Ranges of Increasing Returns," Working Paper Series rwp08-024, Harvard University, John F. Kennedy School of Government.
    • Handle: RePEc:ecl:harjfk:rwp08-024
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    References listed on IDEAS

    as
    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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    More about this item

    JEL classification:

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

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