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Active Product Development

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  • Santiago Oliveros

Abstract

We introduce a dynamic model in which a developer incrementally improves a product of uncertain quality over time, with the quality evolving as a controlled Brownian motion. At each moment in time, the developer can continue exploring by paying a flow cost, restart from a previously attained quality level by paying a fixed cost, or terminate the process by either freely abandoning the project or by incurring a cost to launch the highest quality observed so far. The optimal strategy is characterized by a free boundary of an impulse-controlled Brownian motion.

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  • Santiago Oliveros, 2025. "Active Product Development," Papers 2507.15438, arXiv.org.
    • Handle: RePEc:arx:papers:2507.15438
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    References listed on IDEAS

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    1. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    2. Steven Callander & Niko Matouschek, 2019. "The Risk of Failure: Trial and Error Learning and Long-Run Performance," American Economic Journal: Microeconomics, American Economic Association, vol. 11(1), pages 44-78, February.
    3. Arjada Bardhi, 2024. "Attributes: Selective Learning and Influence," Econometrica, Econometric Society, vol. 92(2), pages 311-353, March.
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