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Resource allocation when projects have ranges of increasing returns

Author

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  • 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.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Catherine Bobtcheff & Christian Gollier & Richard Zeckhauser, 2008. "Resource allocation when projects have ranges of increasing returns," Journal of Risk and Uncertainty, Springer, vol. 37(1), pages 1-33, August.
  • Handle: RePEc:kap:jrisku:v:37:y:2008:i:1:p:1-33
    DOI: 10.1007/s11166-008-9044-y
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    File URL: http://hdl.handle.net/10.1007/s11166-008-9044-y
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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.
    2. Heal, G.M., 1997. "The Economics of Increasing Returns," Papers 97-20, Columbia - Graduate School of Business.
    3. Donald J. Brown & Geoffrey Heal, 1979. "Equity, Efficiency and Increasing Returns," Review of Economic Studies, Oxford University Press, vol. 46(4), pages 571-585.
    4. Masahiko Aoki, 2013. "An Investment Planning Process for an Economy with Increasing Returns," Chapters,in: Comparative Institutional Analysis, chapter 4, pages 37-48 Edward Elgar Publishing.
    5. Weitzman, Martin L, 1979. "Optimal Search for the Best Alternative," Econometrica, Econometric Society, vol. 47(3), pages 641-654, May.
    6. Cremer, Jacques, 1977. "A Quantity -Quantity Algorithm for Planning under Increasing Returns to Scale," Econometrica, Econometric Society, vol. 45(6), pages 1339-1348, September.
    7. Scherer, F. M., 1983. "The propensity to patent," International Journal of Industrial Organization, Elsevier, vol. 1(1), pages 107-128, March.
    8. Ginsberg, William, 1974. "The multiplant firm with increasing returns to scale," Journal of Economic Theory, Elsevier, vol. 9(3), pages 283-292, November.
    9. Rader, Trout, 1970. "Resource Allocation with Increasing Returns to Scale," American Economic Review, American Economic Association, vol. 60(5), pages 814-825, December.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Capital allocation; Increasing returns; Probabilistic returns; Egalitarian allocation; Complete specialization; D24; C60; D84;

    JEL classification:

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

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