Dynamic project selection

Arina Nikandrova · Romans Pancs

26 citations0/0 files storedTheoretical Economics

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Capital Investment and Risk Analysis Game Theory and Voting Systems Game Theory and Applications

Abstract

We study a normative model of an internal capital market that a company uses to choose between its two divisions’ projects. Each project's value is initially unknown to all, but can be dynamically learned by the corresponding division. Learning can be suspended or resumed at any time and is costly. We characterize an internal capital market that maximizes the company’s expected cash flow.

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References

1994Investment under Uncertainty 1997Internal Capital Markets and the Competition for Corporate Resources 2000The Cost of Diversity: The Diversification Discount and Inefficient Investment 2000The Dark Side of Internal Capital Markets: Divisional Rent‐Seeking and Inefficient Investment 1990Stochastic Integration and Differential Equations 2006The Theory of Corporate Finance 2005Applied Stochastic Control of Jump Diffusions 2004Strategic Experimentation with Exponential Bandits

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2019Optimal Dynamic Allocation of Attention 2024A data-driven decision-making approach for evaluating the projects according to resilience, circular economy and industry 4.0 dimension 2022Keeping the Listener Engaged: A Dynamic Model of Bayesian Persuasion

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