| Abstract: | This study provides a synthesis and critique of the evolving search theory literature. The basic objective is to familiarize economists with the standard assumptions and techniques of the theory, as well as to suggest an economic application. Chapter I is concerned with defining the nature of the economic search problem with which we are concerned. The standard neoclassical assumption that the entrepreneur (sic) possesses an exhaustive knowledge of efficient production techniques is dropped. The result of this is the emergence of a production function involving many subfunctions distinguished by the unique mix of capital input forms employed. Because the number of subfunctions involved nay be large, it is argued that the production function cannot he a technological datum to the firm. Instead, it is a subjective construct whose dimensions are a function of a systematic, firm directed search effort. In Chapter II we deal explicitly with the theory of search. There we derive solutions to the problem of the optimum distribution of a given amount of search effort, both for the special case in which the detection probability function takes a specific analytical form, and the general case in which the only assumption made about the function is that it obeys the law of diminishing returns. The necessary condition such that the effort distribution maximizes the probability of detection is seen to be the same in either case. Finally, it is shown that the overall detection probability is maximized when effort is applied sequentially if, and only if, each additional amount of effort is optimally distributed.. |
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