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Innovation and information acquisition under time inconsistency and uncertainty

Author

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  • Sophie Chemarin

    (X-DEP-ECO - Département d'Économie de l'École Polytechnique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris)

  • Caroline Orset Orset

    (ECO-PUB - Economie Publique - INRA - Institut National de la Recherche Agronomique - AgroParisTech)

Abstract

When an agent invests in new industrial activities, he has a limited initial knowledge on his project's returns. Acquiring information allows him both to reduce the uncertainty on the dangerousness of this project and to limit potential damages on people health and on the environment that it might cause. In this paper, we study whether there exist situations where 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 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 the information's precision. Finally, we analyse the role that existing liability rules could play as an incentive to acquire information under uncertainty and regarding the form of the agent's preferences.

Suggested Citation

  • Sophie Chemarin & Caroline Orset Orset, 2011. "Innovation and information acquisition under time inconsistency and uncertainty," Post-Print hal-01541520, HAL.
    • Handle: RePEc:hal:journl:hal-01541520
    DOI: 10.1057/grir.2010.9
    Note: View the original document on HAL open archive server: https://hal.science/hal-01541520v1
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    References listed on IDEAS

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    1. Brocas, Isabelle & Carrillo, Juan D., 2005. "A theory of haste," Journal of Economic Behavior & Organization, Elsevier, vol. 56(1), pages 1-23, January.
    2. Salanie, Francois & Treich, Nicolas, 2006. "Over-savings and hyperbolic discounting," European Economic Review, Elsevier, vol. 50(6), pages 1557-1570, August.
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    6. Read, Daniel, 2001. "Is Time-Discounting Hyperbolic or Subadditive?," Journal of Risk and Uncertainty, Springer, vol. 23(1), pages 5-32, July.
    7. Henry, Claude, 1974. "Investment Decisions Under Uncertainty: The "Irreversibility Effect."," American Economic Review, American Economic Association, vol. 64(6), pages 1006-1012, December.
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    Cited by:

    1. Orset, Caroline, 2019. "How Do Travellers Respond to Health and Environmental Policies to Reduce Air Pollution?," Ecological Economics, Elsevier, vol. 156(C), pages 68-82.
    2. Julien Jacob & Caroline Orset, 2020. "Innovation, information, lobby and tort law under uncertainty," Working Papers of BETA 2020-25, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.

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    Keywords

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    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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