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Herd behaviour as an incentive scheme

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Author Info
Nicolas Melissas ()

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Abstract

We consider a set-up in which firms sequentially adopt a technology. The technology is a public good. Late movers, upon observing the early movers adopting the old technology, (partly) infer that the new technology does not exist. This hampers their incentives to innovate. Early movers anticipate this and rather exert effort to try to invent the new technology. Hence, in our model herding reduces free-rider problems and may - in the presence of switching costs - even increase efficiency. Copyright Springer-Verlag Berlin/Heidelberg 2005

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File URL: http://hdl.handle.net/10.1007/s00199-004-0530-4
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Publisher Info
Article provided by Springer in its journal Economic Theory.

Volume (Year): 26 (2005)
Issue (Month): 3 (October)
Pages: 517-536
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Handle: RePEc:spr:joecth:v:26:y:2005:i:3:p:517-536

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Related research
Keywords: Free-rider problem; Public good; Information externality; Herd behaviour; Social learning.;

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