Dynamic evolution of economically preferred facilities

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By Dorit S. Hochbaum


In a sustained development scenario, it is often the case that an investment is to be made over time in facilities that generate benefits. The benefits result from joint synergies between the facilities expressed as positive utilities specific to some subsets of facilities. As incre- mental budgets to finance fixed facility costs become available over time, additional facilities can be opened. The question is which facil- ities should be opened in order to guarantee that the overall benefit return over time is on the highest possible trajectory. This problem is common in situations such as ramping up a communication or transportation network where the facilities are hubs or service stations, or when introducing new technologies such as alternative fuels for cars and the facilities are fueling stations, or when expanding the pro- duction capacity with new machines, or when facilities are functions in a developing organization that is forced to make choices of where to invest limited funding.

Link to material: http://ifors.org/developing_countries/downloads/sept2_2011/Hochbaum_2009_European-Journal-of-Operational-Research.pdf