IDEAS home Printed from https://ideas.repec.org/p/iea/carech/0904.html
   My bibliography  Save this paper

Step-by-Step Explanation of Hendricks and Kovenock (1989)'s Model of Social Learning

Author

Listed:

Abstract

We explain the Hendricks and Kovenock (1989)'s framework by studying the behavior of two strategic firms under an informational externality. The informational externality arises when each firm of a social network is endowed with private information regarding the profitability of the investment. In such situations, the past decisions of the firms are informative and, thus, are used as partially revealing signals of private information. Asymmetric information and the observability of actions render the firm's problem dynamic and strategic because the investment decision of one firm affects the other firms' future payoffs through the learning process. We describe the model and we show that there exists a unique symmetric Bayesian Nash equilibrium. The informational externality increases the likelihood for a firm to refrain from investing immediately in order to make a more informed decision in the future.

Suggested Citation

  • Marc Santugini, 2009. "Step-by-Step Explanation of Hendricks and Kovenock (1989)'s Model of Social Learning," Cahiers de recherche 09-04, HEC Montréal, Institut d'économie appliquée, revised Nov 2012.
  • Handle: RePEc:iea:carech:0904
    as

    Download full text from publisher

    File URL: http://www.hec.ca/iea/cahiers/2009/iea0904_msantugini_v2.pdf
    Download Restriction: no

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iea:carech:0904. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Patricia Power). General contact details of provider: http://edirc.repec.org/data/iehecca.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.