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Information Cost and Innovation Adoption Policies

Author

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  • Richard Jensen

    (Department of Economics, University of Kentucky, Lexington, Kentucky 40506)

Abstract

A firm's manager must decide whether to adopt an innovation of uncertain profitability or to obtain some information and then decide to adopt or reject the innovation. Obtaining information can involve either waiting to receive some costless information or buying some additional information as well. The optimal policy for this decision problem may not have a reservation property. That is as the probability of success rises from 0 to 1, the optimal policy may be: wait, buy, wait, buy, and adopt. This suggests a complexity in managerial decision-making regarding innovations of uncertain profitability when there are both costless and costly information sources available to the manager.

Suggested Citation

  • Richard Jensen, 1988. "Information Cost and Innovation Adoption Policies," Management Science, INFORMS, vol. 34(2), pages 230-239, February.
    • Handle: RePEc:inm:ormnsc:v:34:y:1988:i:2:p:230-239
    DOI: 10.1287/mnsc.34.2.230
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    Citations

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    Cited by:

    1. Beck, Jonathan, 2008. "Diderot´s rule," Discussion Papers, Research Unit: Competition and Innovation SP II 2008-13, WZB Berlin Social Science Center.
    2. Fonseca, Tiago & Lima, Francisco & Pereira, Sonia C., 2018. "Understanding productivity dynamics: A task taxonomy approach," Research Policy, Elsevier, vol. 47(1), pages 289-304.
    3. Fazıl Paç, M. & Savin, Sergei & Velu, Chander, 2018. "When to adopt a service innovation: Nash equilibria in a competitive diffusion framework," European Journal of Operational Research, Elsevier, vol. 271(3), pages 968-984.
    4. Scott A. Shane & Karl T. Ulrich, 2004. "50th Anniversary Article: Technological Innovation, Product Development, and Entrepreneurship in Management Science," Management Science, INFORMS, vol. 50(2), pages 133-144, February.
    5. Li, Ying & Jin, Yanhong H., 2009. "Racing to market leadership: Product launch and upgrade decisions," International Journal of Production Economics, Elsevier, vol. 119(2), pages 284-297, June.
    6. Kyungsuk Lee & Taewoo Roh, 2020. "Proactive Divestiture and Business Innovation: R&D Input and Output Performance," Sustainability, MDPI, vol. 12(9), pages 1-19, May.
    7. Mehrez, A. & Yuan, Y. & Gafni, A., 1995. "The search for information -- A patient perspective on multiple opinions," European Journal of Operational Research, Elsevier, vol. 85(2), pages 244-262, September.
    8. Tetsuya Kasahara, 2015. "Strategic Technology Adoption Under Dispersed Information and Information Learning," International Journal of Innovation and Technology Management (IJITM), World Scientific Publishing Co. Pte. Ltd., vol. 12(06), pages 1-18, December.
    9. Antonio Martins-Neto & Nanditha Mathew & Pierre Mohnen & Tania Treibich, 2021. "Is There Job Polarization in Developing Economies? A Review and Outlook," CESifo Working Paper Series 9444, CESifo.
    10. Lin, Sheng-Wei, 2016. "The critical success factors for a travel application service provider evaluation and selection by travel intermediaries," Tourism Management, Elsevier, vol. 56(C), pages 126-141.

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