nep-ppm New Economics Papers
on Project, Program and Portfolio Management
Issue of 2008‒11‒25
five papers chosen by
Arvi Kuura
Parnu College - Tartu University

  1. Optimal Sharing Strategies in Dynamic Games of Research and Development By Nisvan Erkal; Deborah Minehart
  2. Bidding for Investment Projects: Smart Public Policy or Corporate Welfare? By Johannes Van Biesebroeck
  3. Land Acquisition in Development Projects: Investment Value and Risk By Michal Gluszak
  4. Methods for innovation projects risk evaluation By Sipos, Gabriela Lucia; Ciurea, Jeanina Biliana
  5. A rationale for the payback criterion By Jahnke, Hermann; Simons, Dirk

  1. By: Nisvan Erkal; Deborah Minehart
    Abstract: This paper builds a theoretical foundation for the dynamics of knowledge sharing in private industry. In practice, research and development projects can take years or even decades to complete. We model an uncertain research process, where research projects consist of multiple sequential steps. We ask how the incentives to license intermediate steps to rivals change over time as the research project approaches maturity and the uncertainty that the firms face decreases. Such a dynamic approach allows us to analyze the interaction between how close the firms are to product market competition and how intense that competition is. If product market competition is relatively moderate, the lagging firm is expected never to drop out and the incentives to share intermediate research outcomes decreases monotonically with progress. However, if product market competition is relatively intense, the incentives to share may increase with progress. These results illustrate under what circumstances it is necessary to have policies aimed at encouraging cooperation in R&D and when such policies should be directed towards early vs. later stage research
    Keywords: Multi-stage R&D; innovation; knowledge sharing; licensing; dynamic games
    JEL: L24 O30 D81
    Date: 2008
  2. By: Johannes Van Biesebroeck
    Abstract: Recently, several governments in Canada have shown an increased willingness to subsidize private investment projects, especially in the manufacturing sector, to the dismay of tax conservatives. I evaluate under what circumstances these government subsidies make sense, paying particular attention to interjurisdictional competition. I show what governments should expect to pay when they join a bidding war and derive the expected welfare gain. The analysis looks in detail at the efforts of the Ontario and federal governments to attract new investments in the automobile sector.
    Keywords: Foreign Direct Investment; government competition; subsidies; investment incentives; automobile industry; opportunity cost
    JEL: H25 H23 L62 D44
    Date: 2008–11–16
  3. By: Michal Gluszak
    Date: 2008
  4. By: Sipos, Gabriela Lucia; Ciurea, Jeanina Biliana
    Abstract: Starting an innovation project assumes to state some competitive objectives referring to the allocated budget, time limit for project’s ending and also to the quality and performance parameters of the new obtained product. Referring to the innovation project development, the risk of unfulfilling the stated competitive objectives referrers to the exceeding the project’s budget and terms, and also to unfitting in the quality and performance parameters established in the innovation project planning stage. The large diversity of risk sources can be expressed by the possibility of appearance of some unexpected variations of the cost, time and quality of the new products. The innovation projects risk is settled by the variations of the cost, time and quality objectives effective values comparing to the planned values. Those variations are determined by purely random factors. The innovation projects characterized by uniform variations of the cost, time and quality objectives effective values around the mean are considered to be under statistic control. Those projects’ risk may be quantified and the risk impact over the project can be limited. The innovation projects characterized by fluctuant variations of the cost, time and quality objectives effective values around the mean are considered to be out of statistic control. The aim of this paper is to present two categories of statistic methods for innovation projects risk quantifying. The first statistic methods that quantify the risk of unfitting the quantitative objectives referrers to the time risk, cost risk and the risk of unfitting established performance parameters. The second category of methods represents statistic methods that quantify the risk of unfitting the qualitative objectives of the projects – the risk of appearance major quality deficiencies.
    Keywords: innovation project; risk evaluation; cost; time and quality objectives
    JEL: O32 G32
    Date: 2008–02
  5. By: Jahnke, Hermann (University of Bielefeld); Simons, Dirk (University of Mannheim)
    Abstract: Textbooks on financial management have emphasized the shortcomings of the payback criterion for decades. However, empirical evidence suggests that in actual capital budgeting procedures the payback method is used quite regularly. Mostly, it is implemented supplementary to net present value or internal rate of return, but small companies tend to rely on payback times as single criterion. A convincing theoretical foundation for the observed use of the payback criterion is lacking. Consequently, our goal is to provide such an explanation for the payback criterion’s popularity. We demonstrate from a decision theoretical perspective how relying on payback times simplifies investment decisions in modern organizations. Gathering information from different management levels and ensuring the utilization of individual skills requires a multi-stage capital budgeting process. Accordingly, we consider fundamental organizational features of this process with respect to their impact on the payback method’s use. For this purpose, we built upon almost stochastic dominance (ASD) as modeling device. Firstly, we show that applying his concept allows to include the risk preferences of all relevant decision makers into the analysis. Secondly, we illustrate that the criteria derived from this model help conveying these preferences to those who do the preparatory work preceding the final decision. To some extent, these new criteria are generalizations of payback times. This finding provides a potential explanation for the payback’s persisting prominence.
    Date: 2008–09–28

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