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The Impact Of Budget Constraints On Flexible Vs. Dedicated Technology Choice, Onur Boyabatli, Tiecheng Leng, L. Beril Toktay

Research Collection Lee Kong Chian School Of Business

This paper studies the flexible versus dedicated technology choice and capacity investment decisions of a multiproduct firm under demand uncertainty in the presence of budget constraints. The firm operates under a capital budget for financing the capacity investment, and an operating budget, which is uncertain in the capacity investment stage, for financing the production. We investigate how the tightening of the capital budget and a lower financial flexibility in the production stage (the likelihood of having a sufficient operating budget) shape the optimal technology choice. We find that the dominant regime is one where dedicated technology should be adopted for …