Investing in Capabilities: The Dynamics of Resource Allocation

Authored by Corinne A. Coen, Catherine A. Maritan

DOI: 10.1287/orsc.1090.0524

Sponsors: University at Buffalo School of Management Syracuse University Office of the Vice President

Platforms: Swarm

Model Documentation: Other Narrative Flow charts

Model Code URLs: Model code not found

Abstract

In this research, we examine the dynamic capability of resource allocation to invest in operational capabilities. Using a computer simulation, we model a process of firms competing in factor markets for opportunities to invest in existing capabilities and acquire new ones. Based on the simulation results, we derive a set of propositions about the conditions under which there are and are not performance benefits from possessing a superior ability to search for new capabilities. Because the definition of what constitutes a new capability is based on a firm's preexisting capabilities, we also incorporate differences in initial endowments into the analysis. We find that endowment and search ability both matter, and that in many circumstances, the effects of possessing a superior endowment dominate the effects of superior search ability.

Tags

Agent-based model Computer simulation dynamic capabilities Resource allocation factor market investment