Step-by-Step Explanation of Hendricks and Kovenock (1989)'s Model of Social Learning
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.
|Date of creation:||Apr 2009|
|Date of revision:||Nov 2012|
|Contact details of provider:|| Postal: |
Phone: (514) 340-6463
Fax: (514) 340-6469
Web page: http://www.hec.ca/iea/Email:
More information through EDIRC
|Order Information:|| Postal: Institut d'économie appliquée HEC Montréal 3000, Chemin de la Côte-Sainte-Catherine Montréal, Québec H3T 2A7|
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)
If references are entirely missing, you can add them using this form.