In this paper we propose a new rule to allocate risk capital to portfolios or divisions within a firm. Specifically, we determine the capital allocation that minimizes the excesses of sets of portfolios in a lexicographical sense. The excess of a set of portfolios is defined as the expected loss...

We examine operating and investment decisions in a duopolistic industry in which an initial investment in research yields an immediate tax benefit for one firm, but creates a net operating loss carryover for the other firm. We show that the conventional wisdom that suggests that the first firm...