Optimizing the Allocation of a Fixed Resource: A Simple Model and Its Experimental Test

Abstract

A simple allocation model is developed in which response is assumed to be linear in the logs of the control variables. It is then shown that the optimal allocation of a fixed total resource is proportional to the partial regression weights when the linear-in-logs model is fitted by least squares. The model is tested on subjects’ preferences for alternative allocations of leisure time. Possible applications of the model to general allocation problems are also discussed.

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