The linear R&D project selection problem: an alternative to net present value

An alternative to the net present value (NPV) formulation of the objective in problems involving choice between cash flows over time is presented. This approach is illustrated in an R&D project selection problem. It is shown that the NPV formulation is a special case of optimizing a multiattribute value function. This special case requires restrictive assumptions about the decision-maker's preferences over time. The authors suggest instead that multiobjective linear programming methods be used to produce a set of nondominated solutions. This methodology is analytically tractable and requires no assumptions about the decision-maker's time preferences.<
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