A channel model of investment decision: An intertemporal planning approach

The paper considers some theoretical implications of the Oslo-Cairo intertemporal planning model (the channel model). A version of the channel model with private and public investment projects is developed. The optimality properties of the model are derived. It is shown that: (i) Pareto solution can be supported by competitive prices and (ii) a ranking criterion can be constructed in the spirit of cost-and-benefit analysis. The results brings the channel model theoretically in line with the classical resource allocation models.This paper is a revised and abridged version of Chapter Two of my doctoral dissertation at the University of Kansas. I wish to thank Professor Mohamed El-Hodiri, Chairman of my thesis committee, for his guidance and support and for introducing me to the theory of optimal control with delays. I would also like to thank Professors Van Vleck, Paul Comolli, David Burress and Tom Weiss for their helpful suggestions. The paper has benefited substantially from the comments provided by anonymous referees. I remain responsible for all errors and inaccuracies.