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Information Cost and Innovation Adoption Policies

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Author Info

  • 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.

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File URL: http://dx.doi.org/10.1287/mnsc.34.2.230
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Bibliographic Info

Article provided by INFORMS in its journal Management Science.

Volume (Year): 34 (1988)
Issue (Month): 2 (February)
Pages: 230-239

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Handle: RePEc:inm:ormnsc:v:34:y:1988:i:2:p:230-239

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Keywords: innovation; adoption; probability of success; information; optimal policy; reservation property;

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Cited by:
  1. Beck, Jonathan, 2008. "Diderot´s rule," Discussion Papers, Research Unit: Competition and Innovation SP II 2008-13, Social Science Research Center Berlin (WZB).
  2. 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.

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