Resource allocation when projects have ranges of increasing returns
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.
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- Donald J. Brown & Geoffrey M. Heal, 1978. "Equity, Efficiency and Increasing Returns," Cowles Foundation Discussion Papers 504, Cowles Foundation for Research in Economics, Yale University.
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in: Comparative Institutional Analysis, chapter 4, pages 37-48
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234, Massachusetts Institute of Technology (MIT), Department of Economics.
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- repec:oup:restud:v:38:y:1971:i:115:p:273-80 is not listed on IDEAS
- Rader, Trout, 1970. "Resource Allocation with Increasing Returns to Scale," American Economic Review, American Economic Association, vol. 60(5), pages 814-25, December.
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- Heal, G.M., 1997. "The Economics of Increasing Returns," Papers 97-20, Columbia - Graduate School of Business.
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