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A Model for Funding Interrelated Research and Development Projects Under Uncertainty

Published online by Cambridge University Press:  19 October 2009

Carole A. Aldrich
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Extract

Selection of funding levels for research and development (R & D) projects is a major problem facing the firm. Models for selecting funding levels have frequently been formulated under the assumptions that the projects can be evaluated independently (Aldrich [1], Hess [4], Lucas [6]) or that the projects are interrelated only in terms of requirements for specialized input resources (Asher [2]). In fact, the projects of a given firm are likely to be highly interdependent, either in the sense that progress on one project eases work on another (research interdependency) or in the sense that completion of one project alters the market situation of another (output interdependency). While Weingartner [8] discusses these interdependencies, he does so under the assumption that the project funding level is fixed.

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Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 9 , Issue 1 , January 1974, pp. 117 - 128
Copyright
Copyright © School of Business Administration, University of Washington 1974

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References

REFERENCES

[1]Aldrich, Carole A. “A Study in the Funding of R & D Projects.” Ph.D. diss., Carnegie-Mellon University, 1972.Google Scholar
[2]Asher, D. T. “A Linear Programming Model for the Allocation of R & D Efforts.” IRE Trans, on Eng. Mgt., vol. EM-9 (December 1964), pp. 124–134.Google Scholar
[3]Gittens, J. C. “Optimal Research Allocation in Chemical Research.” Advances in Applied Probability, vol. 1 (Autumn 1969), pp. 283–270.Google Scholar
[4]Hess, S. W. “A Dynamic Programming Approach to R & D Budgeting and Project Selection.” IRE Trans, on Eng. Mgt., vol. EM-9 (December 1962), pp. 170–178.CrossRefGoogle Scholar
[5]Kamien, M. I., and Schwartz, N.. “Expenditure Patterns for Risky R & D Projects.” Journal of Applied Probability, vol. 8 (March 1971), pp. 60–72.CrossRefGoogle Scholar
[6]Lucas, Robert E. “Optimal Management of a Research and Development Project.” Management Science, vol. 1 (July 1971), pp. 679–697.CrossRefGoogle Scholar
[7]Mansfield, Edwin. Industrial Research and Technological Change. New York: W. W. Norton & Company, 1968.Google Scholar
[8]Weingartner, H. M. “Capital Budgeting of Interrelated Projects.” Management Science, vol. 12 (March 1966), pp. 485–516.CrossRefGoogle Scholar