Active Product Development by Santiago Oliveros

Join us for another event in the Microeconomics Research Seminar Series, Spring Term 2026.

Santiago Oliveros, from the University of Bristol, will present this week's Microeconomics Seminar on Active Product Development.

Abstract

We study product development by an intrinsically motivated agent who can actively intervene in the evolution of the product and seeks to attain the highest possible quality. Absent intervention, the product’s quality evolves according to a Brownian motion with known drift and volatility, while active interventions allow the agent to reset the process to any previously attained quality. The agent incurs a flow cost while the process evolves without intervention and a fixed cost when resetting the development process. She also controls the fate of the product: at any moment in time, the process can be stopped and the product either launched at a previously attained quality at a fixed cost or abandoned at zero cost. The agent’s problem newly combines impulse control and optimal stopping of a diffusion, with payoffs that depend jointly on the diffusion’s current level and its running maximum. Restricting attention to stationary policies ensures that the resulting bidimensional controlled process remains Markovian despite endogenous jumps. This allows us to formulate the problem as an implicit obstacle problem and characterize the value function as a viscosity solution to a stationary first-hitting-time problem with a non-smooth boundary, yielding a tractable characterization of optimal continuation, reset, launch, and quitting regions. The model captures how active decision-making manages uncertainty through reversible trial-and-error experimentation by a developer with perfect recall.

This seminar will be held in the Economics Common Room on Monday 26 January at 4.00pm. This event is open to all levels of study and is also open to the public.

To register your place and gain access to the webinar, please contact the seminar organisers.

This event is part of the Microeconomics Research Seminar Series.