Granularity, Time and Control of Economic Resources

Abstract

Opportunity cost is a central concept in decision making. It is difficult to measure because it is the value associated with opportunities foregone. In this paper, we characterize three time-based dimensions of resources to help understand and estimate opportunity costs. These dimensions capture the intrinsic lumpiness of resources with respect to their acquisition (acquisition granularity), the extent to which they retain their usefulness over time (expiration granularity), and the extent to which the decision-maker has control over the consumption of these resources (consumption granularity). We illustrate how these concepts may be used in decision making. We show how the granularity framework points to a non-linear cost assignment procedure using multiple cost drivers for some resources.

JEL Classification: M40, M46