Econometrica: Sep, 1981, Volume 49, Issue 5

Funding Criteria for Research, Development, and Exploration Projects

https://doi.org/0012-9682(198109)49:5<1261:FCFRDA>2.0.CO;2-8
p. 1261-1288

Kevin Roberts, Martin L. Weitzman

The sequential nature of activities like research, development, or exploration requires optimal funding criteria to take account of the fact that subsequent funding decisions will be made throughout the future. Thus, there is a continual possibility of reviewing a project's status, based on the latest information. After setting up a model to capture this feature, optimal funding criteria are investigated. In an important special case, an explicit formula is derived. As well as throwing light upon the nature of development activities, the analysis is also relevant to the general theory of information gathering processes.