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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- M. L. Weitzman & K. Roberts, 1979.
"Funding Criteria for Research, Development and Exploration Projects,"
234, Massachusetts Institute of Technology (MIT), Department of Economics.
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"Equity, Efficiency and Increasing Returns,"
Cowles Foundation Discussion Papers
504, Cowles Foundation for Research in Economics, Yale University.
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- Masahiko Aoki, 2013.
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Edward Elgar Publishing.
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"Optimal Search for the Best Alternative,"
214, Massachusetts Institute of Technology (MIT), Department of Economics.
- Cremer, Jacques, 1977. "A Quantity -Quantity Algorithm for Planning under Increasing Returns to Scale," Econometrica, Econometric Society, vol. 45(6), pages 1339-48, September.
- Ginsberg, William, 1974. "The multiplant firm with increasing returns to scale," Journal of Economic Theory, Elsevier, vol. 9(3), pages 283-292, November.
- Heal, G.M., 1997. "The Economics of Increasing Returns," Papers 97-20, Columbia - Graduate School of Business.
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