An Optimal Control Model of Product Improvement R&D.
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Given a production function for technical change, this paper seeks to maximize the present discounted value of the difference between its benefits and costs. A model is developed within the context of a program in which an organization attempts to improve the performance of one of its systems subject to an arbitrary fiscal constraint that limits the rate of R&D spending on that system. In more concrete terms, the organization can be viewed as the Air Force engaged in a product-improvement program for one of its jet engines. A fiscal constraint may then be imposed by the Air Force's chief R&D officer or by Congress itself. Predictions of the model are compared with casual observations of behavior and the implications of "austere" budgets are discussed.
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