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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
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    File URL: http://dx.doi.org/10.1287/mnsc.34.2.230
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    References listed on IDEAS

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    1. Ian I. Mitroff, 1972. "The Myth of Objectivity OR Why Science Needs a New Psychology of Science," Management Science, INFORMS, vol. 18(10), pages 613-618, June.
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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. Scott A. Shane & Karl T. Ulrich, 2004. "50th Anniversary Article: Technological Innovation, Product Development, and Entrepreneurship in Management Science," Management Science, INFORMS, pages 133-144.
    3. 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.
    4. 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.
    5. 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.
    6. repec:eee:respol:v:47:y:2018:i:1:p:289-304 is not listed on IDEAS
    7. repec:eee:touman:v:56:y:2016:i:c:p:126-141 is not listed on IDEAS

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