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Strategic Delay and the Onset of Investment Cascades


  • Jianbo Zhang


I study the phenomenon of herd behavior in a framework where agents can endogenously choose both the actions and the timing of their actions. I assume that agents may have privately known quality and content of information. A unique symmetric equilibrium in pure strategies is proved to exist and characterized in its closed form. An investment cascade always occurs in the equilibrium, and a strategic delay is shown to exist before the sudden onset of the investment cascade. I also examine the loss of welfare from delay and information cascade

Suggested Citation

  • Jianbo Zhang, 1997. "Strategic Delay and the Onset of Investment Cascades," RAND Journal of Economics, The RAND Corporation, vol. 28(1), pages 188-205, Spring.
  • Handle: RePEc:rje:randje:v:28:y:1997:i:spring:p:188-205

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    References listed on IDEAS

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    Cited by:

    1. Jianbo Zhang & Zhentang Zhang, 1999. "Asymptotic Efficiency in Stackelberg Markets with Incomplete Information," CIG Working Papers FS IV 99-07, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    2. Zhao, Jinhua, 2005. "The Role of Information in Technology Adoption under Poverty," WIDER Working Paper Series 041, World Institute for Development Economic Research (UNU-WIDER).
    3. Xue, J., 2006. "Collective Behavior with Endogenous Thresholds," Cambridge Working Papers in Economics 0613, Faculty of Economics, University of Cambridge.
    4. Young-Ro Yoon, 2007. "Endogenous Timing of Actions under Conflict between Two Types of Second Mover Advantage," Caepr Working Papers 2007-013, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
    5. Wang, Tao, 2017. "Information revelation through bunching," Games and Economic Behavior, Elsevier, vol. 102(C), pages 568-582.
    6. repec:ebl:ecbull:v:12:y:2004:i:4:p:1-7 is not listed on IDEAS
    7. repec:spr:jeicoo:v:12:y:2017:i:1:d:10.1007_s11403-015-0156-6 is not listed on IDEAS
    8. Markus K Brunnermeier, 1997. "Prices, Price Processes, Volume and Their Information: A Literature Survey," FMG Discussion Papers dp270, Financial Markets Group.
    9. Henry Cao & David Hirshleifer, 2004. "Taking the Road Less Traveled: Does Conversation Eradicate Pernicious Cascades?," Game Theory and Information 0412001, EconWPA.
    10. Brunnermeier, Markus K. & Morgan, John, 2010. "Clock games: Theory and experiments," Games and Economic Behavior, Elsevier, vol. 68(2), pages 532-550, March.
    11. Bhalla, Manaswini, 2011. "Endogenous order and information aggregation," Research in Economics, Elsevier, vol. 65(4), pages 319-331, December.
    12. Haibin Zhu, 2001. "Bank runs without self-fulfilling prophecies," BIS Working Papers 106, Bank for International Settlements.
    13. Antonio E. Bernardo & Ivo Welch, 2001. "On the Evolution of Overconfidence and Entrepreneurs," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(3), pages 301-330, September.
    14. Nakazono, Yoshiyuki, 2013. "Strategic behavior of Federal Open Market Committee board members: Evidence from members’ forecasts," Journal of Economic Behavior & Organization, Elsevier, vol. 93(C), pages 62-70.
    15. Henk Folmer & Auke Leen, 2013. "Why do successful restaurants not raise their prices?," Letters in Spatial and Resource Sciences, Springer, vol. 6(2), pages 81-90, July.
    16. 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.
    17. Tao Wang, 2011. "Dynamic Equilibrium Bunching," Working Papers 1291, Queen's University, Department of Economics.
    18. Chamley, Christophe, 2004. "Delays and equilibria with large and small information in social learning," European Economic Review, Elsevier, vol. 48(3), pages 477-501, June.
    19. Edward Cartwright, 2015. "Strategic delay and information cascades," Journal of Economics, Springer, vol. 114(1), pages 63-74, January.
    20. Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 1998. "Learning from the Behavior of Others: Conformity, Fads, and Informational Cascades," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 151-170, Summer.
    21. Yoon, Young-Ro, 2009. "Endogenous timing of actions under conflict between two types of second mover advantage," International Journal of Industrial Organization, Elsevier, vol. 27(6), pages 728-738, November.
    22. Meub, Lukas & Proeger, Till & Hüning, Hendrik, 2013. "A comparison of endogenous and exogenous timing in a social learning experiment," Center for European, Governance and Economic Development Research Discussion Papers 167, University of Goettingen, Department of Economics.
    23. Choi, Nicole & Sias, Richard W., 2009. "Institutional industry herding," Journal of Financial Economics, Elsevier, vol. 94(3), pages 469-491, December.
    24. Andrew Wait & Vladimir Smirnov, 2004. "Industry sunk costs and entry dynamics," Economics Bulletin, AccessEcon, vol. 12(4), pages 1-7.
    25. Heidhues, Paul & Melissas, Nicolas, 2012. "Rational exuberance," European Economic Review, Elsevier, vol. 56(6), pages 1220-1240.

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