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Riding Free on the Signals of Others

Author

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  • Alexander-Cook, Kim
  • Bernhardt, Dan
  • Roberts, Joanne

Abstract

This paper looks at the incentives to free-ride on the information signaling of others and shows how this can lead to delay in productive activity and to a cascade of activity once information is signaled. In the presence of increasing returns to scale to a profitable project, an initial pioneer may have to incur short-term losses to signal the opportunity to others. Agents may prefer to defer entry in the hope that others will incur those losses and thereby convey the information. Free-riding incentives can be so strong that profitable projects may not be undertaken. Free-riding is worsened when potential entrants must first acquire a costless signal about the project, and this information acquisition is observed: not acquiring the information commits and agent not to incur the entry costs.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Alexander-Cook, Kim & Bernhardt, Dan & Roberts, Joanne, 1995. "Riding Free on the Signals of Others," Queen's Economics Department Working Papers 273340, Queen's University - Department of Economics.
    • Handle: RePEc:ags:quedwp:273340
    DOI: 10.22004/ag.econ.273340
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    1. is not listed on IDEAS
    2. Robin Boadway & Jean-François Tremblay, 2003. "Public Economics and Startup Entrepreneurs," CESifo Working Paper Series 877, CESifo.
    3. Jörn Hendrich Block & Thorsten Staak & Philipp Tilleßen, 2007. "Ist das staatliche Eingreifen ins Gründungsgeschehen theoretisch legitimiert?," FEMM Working Papers 07007, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    4. Hikmet Gunay, 2008. "Strategic delay in market entry," Canadian Journal of Economics, Canadian Economics Association, vol. 41(3), pages 998-1014, August.
    5. Marc Santugini, 2020. "On the consumer problem under an informational externality," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 8(1), pages 149-161, April.
    6. Comino, Stefano, 2006. "Entry and exit with information externalities," Journal of Economic Behavior & Organization, Elsevier, vol. 60(1), pages 85-99, May.
    7. Pierdzioch Christian & Stadtmann Georg, 2010. "Herdenverhalten von Wechselkursprognostikern? / Herd Behavior of Exchange Rate Forecasters?," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 230(4), pages 436-453, August.

    More about this item

    Keywords

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    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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