Optimal R&D programs in a random environment

Abstract

Our study examines a stochastic R&D model with flexible termination time and without rivalry. Specifically, we assume a stochastic relationship between expenditures rate and the project's status. Furthermore, the termination time of the project is incorporated into the R&D model as a decision variable by allowing the controller to ‘sell' the obtained technology from the project at any point of time. The proposed framework extends the classical approach in the R&D literature.The main purpose of our study is to determine the optimal stopping time of the project and to characterize qualitatively the firm's expenditure strategy. We show that under certain realistic conditions, the optimal stopping strategy is a control limit policy. Furthermore, the research effort increases monotonically over the development time of the project.

Optimal strategies in the fighting fantasy gaming system: Influencing stochastic dynamics by gambling with limited resource

“…Several interesting features of the FF combat system make it potentially noteworthy with respect to similar systems ( Canbolat et al, 2012;Neller & Presser, 20 04;Smith, 20 07 ). The allocation of resource is dynamic and depends on system state ( Blanning, 1981;Hopp, 1987;Posner & Zuckerman, 1990 ). The use of resource can both increase the probability of a positive outcome for the player, or a negative outcome for the opponent.…”

“…The optimal policy for allocating resource to improve a final success probability has been well studied in the context of research and development (R&D) management ( Baye & Hoppe, 2003;Canbolat, Golany, Mund, & Rothblum, 2012;Gerchak & Parlar, 1999;Heidenberger & Stummer, 1999 ). While policies in this field are often described as 'static', where an initial 'up-front' decision is made and not updated over time, dynamic policy choices allowing updated decisions to be made based on the state of the system (including the progress of competitors) have also been examined ( Blanning, 1981;Hopp, 1987;Posner & Zuckerman, 1990 ). Rentseeking 'contest' models ( Clark & Riis, 1998 ) also describe properties of the victory probability as a function of an initial outlay from players.…”

On Conducting Simultaneous Versus Sequential Engineering Activities in Risky R&D

“…See e.g. Mehrez (1988), Posner and Zuckerman (1990), and references therein. In most of these models the R&D activity is complete once it gives rise to a discovery, (or a breakthrough), that resolves the uncertainty and allows the project owners to reap the bene®ts derived from the new technology.…”

A Chance-Constrained Programming Model for the Optimal Stopping Decision of Power R&D Project

“…In traditional optimal stopping decision models, the inter-arrival times are often assumed to be random variables which are exponentially distributed. For instance, Posner and Zuckerman [2] proposed that the optimal stopping strategy is a control limit policy under certain realistic conditions. Watanabe etc.…”