Investment allocation in an adjustment-cost production technology framework for two-stage network structures

Abstract

Effective resource allocation can assist organizations in utilizing infinite resources, thereby improving efficiency and productivity. For an organization, investment is an essential production resource, and how to appropriately allocate investment is one of the most important decisions they need to make. This study aims to rationally allocate investment across each stage of two-stage network structure under two scenarios. We first propose general investment allocation model with adjustment costs to efficiently allocate investments across each stage. Then, given a fixed total investment, we use the DEA-based fixed cost allocation method to achieve the optimal allocation across stages, and we also incorporate two cooperative and noncooperative relationships between two stages. Additionally, capital stock efficiency is defined to analyze the relationship between optimal and actual capital stocks, clarifying the degree to which the optimal capital stock is reached. Finally, the proposed approach is applied to 14 A-share listed companies in China, and suggestions on the optimal amount of investment allocation and capital stock required are provided to facilitate organizational production.