Profit maximization models for exponential decay processes
I wish I could agree on the authors' conclusion asserting that the models developed in this paper would permit a fairly wide range of applications. The stated aim of the paper is to work out decision rules for the replacement of entities, whose revenue decays exponentially over time. Framed in terms of the oil driller's problem, questioning when to abandon an old well and drill a new one, a number of models (finite and infinite horizon, discounted and undiscounted, deterministic and stochastic) are introduced and analysed. The mathematical treatment of the models is rather unsatisfactory and sometimes even incorrect. For example, the very first model leads to a simple two dimensional maximization problem, which may be solved easily once the involved parameters are specified. The authors however, trying to build some theory around this problem, limit very arbitrarily the range of one of the variables (capacity of the well) and assume convexity respectively concavity of the profit function in this same variable (as if this would be exhaustive!) in order to give some further results. In the convex case the optimal value for the capacity is stated to be either the upper or the lower limit without taking into account its dependency on the second variable (time interval between drillings). Unfortunately it is hard for the reviewer to think of any other aim than writing a paper behind this paper.
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