Active Product Development
Theoretical Economics
2025-07-22 v1
Abstract
We introduce a dynamic model in which a developer incrementally improves a product of uncertain quality over time, with the quality evolving as a controlled Brownian motion. At each moment in time, the developer can continue exploring by paying a flow cost, restart from a previously attained quality level by paying a fixed cost, or terminate the process by either freely abandoning the project or by incurring a cost to launch the highest quality observed so far. The optimal strategy is characterized by a free boundary of an impulse-controlled Brownian motion.
Cite
@article{arxiv.2507.15438,
title = {Active Product Development},
author = {Santiago Oliveros},
journal= {arXiv preprint arXiv:2507.15438},
year = {2025}
}
Comments
Keywords: Impulse Control, Search with Recall, Exploration vs. Experimentation,Innovation, R\&D. JEL codes: C72, C73; D81, D82; O31, O32