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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- Weitzman, Martin L, 1979.
"Optimal Search for the Best Alternative,"
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- Donald J. Brown & Geoffrey Heal, 1979. "Equity, Efficiency and Increasing Returns," Review of Economic Studies, Oxford University Press, vol. 46(4), pages 571-585.
- 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.
- Heal, G.M., 1997. "The Economics of Increasing Returns," Papers 97-20, Columbia - Graduate School of Business. Full references (including those not matched with items on IDEAS)
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