The Role of Hurdle Rate in Divisional Performance Evaluation and New Product Development with Alternative Opportunities
13 Pages Posted: 13 May 2019
Date Written: March 31, 2019
This paper investigates the role of hurdle rate in new product development in the situation where the divisional manager is delegated to manage such projects.
I show hurdle rate basically helps control the manager's behaviors regarding risk taking decision and labor intensive expenditures.
I analyze several modified cases and show that there exist cases where such a role of hurdle rate does not function due to the existence of withdrawal opportunities from new product development projects.
Keywords: hurdle rate, new product development, labor intensive expenditure, performance evaluation, innovation
JEL Classification: G31, M41, O31
Suggested Citation: Suggested Citation