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Innovation and Information Acquisition under Time Inconsistency and Uncertainty

Author

Listed:
  • Sophie Chemarin

    () (Ecole Polytechnique and BNP Paribas, Group Risk Management, 22 rue Daunou, 75002 Paris, France.)

  • Caroline Orset

    () (UMR INRA-AgroParisTech, Economie Publique, 16 rue Claude Bernard, 75005 Paris, France.)

Abstract

When an agent invests in new industrial activities, he has a limited initial knowledge of his project's returns. Acquiring information allows him both to reduce the uncertainty on the dangerousness of this project and to limit potential damages that it might cause on people's health and on the environment. In this paper, we study whether there exist situations in which the agent does not acquire information. We find that an agent with time-consistent preferences, as well as an agent with hyperbolic ones, will acquire information unless its cost exceeds the direct benefit they could get with this information. Nevertheless, a hyperbolic agent may remain strategically ignorant and, when he does acquire information, he will acquire less information than a time-consistent type. Moreover, a hyperbolic-discounting type who behaves as a time-consistent agent in the future is more inclined to stay ignorant. We then emphasize that this strategic ignorance depends on the degree of precision of the information. Finally, we analyse the role that existing liability rules could play as an incentive to acquire information under uncertainty and with regard to the form of the agent's preferences.

Suggested Citation

  • Sophie Chemarin & Caroline Orset, 2011. "Innovation and Information Acquisition under Time Inconsistency and Uncertainty," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 36(2), pages 132-173, December.
  • Handle: RePEc:pal:genrir:v:36:y:2011:i:2:p:132-173
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    References listed on IDEAS

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    1. Salanie, Francois & Treich, Nicolas, 2006. "Over-savings and hyperbolic discounting," European Economic Review, Elsevier, vol. 50(6), pages 1557-1570, August.
    2. Roland BĂ©nabou & Jean Tirole, 2002. "Self-Confidence and Personal Motivation," The Quarterly Journal of Economics, Oxford University Press, vol. 117(3), pages 871-915.
    3. Juan D. Carrillo & Thomas Mariotti, 2000. "Strategic Ignorance as a Self-Disciplining Device," Review of Economic Studies, Oxford University Press, vol. 67(3), pages 529-544.
    4. Brocas, Isabelle & Carrillo, Juan D., 2000. "The value of information when preferences are dynamically inconsistent," European Economic Review, Elsevier, vol. 44(4-6), pages 1104-1115, May.
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    Cited by:

    1. Caroline Orset, 2017. "How do travellers respond to health and environmental policies to reduce air pollution?," Working Papers 2017/02, INRA, Economie Publique.

    More about this item

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing

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