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Resource Allocation when Projects Have Ranges of Increasing Returns


  • BOBTCHEFF Catherine

    (LERNA, TSE)

  • GOLLIER Christian

    (LERNA, TSE)

  • ZECKHAUSER Richard


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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Suggested Citation

  • BOBTCHEFF Catherine & GOLLIER Christian & ZECKHAUSER Richard, 2007. "Resource Allocation when Projects Have Ranges of Increasing Returns," LERNA Working Papers 07.03.224, LERNA, University of Toulouse.
  • Handle: RePEc:ler:wpaper:07.03.224

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    References listed on IDEAS

    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.
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    JEL classification:

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

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