The value of reliability

Fosgerau, Mogens and Karlström, Anders (2007): The value of reliability.

Abstract

We derive the value of reliability in the scheduling of an activity of random duration, such as travel under congested conditions. We show that the minimal expected cost is linear in the mean and standard deviation of duration, regardless of the form of the standardized distribution of durations. This insight provides a unification of the scheduling model and models that include the standard deviation of duration directly as an argument in the cost or utility function. The results generalize approximately to the case where the mean and standard deviation of duration depend on the starting time. Empirical illustration is provided.

• Item Type: MPRA Paper
• Language: English
• Keywords: Welfare; Random duration; Time; Scheduling; Reliability; Variability
• Subjects: D - Microeconomics > D0 - General; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty

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