Informational spillovers and the coordination of speculative investments

Francisco Gonzalez ()

Canadian Journal of Economics, 2004, vol. 37, issue 1, 140-148

Abstract: The influence of informational spillovers on the entrepreneur's incentive to undertake reversible investment opportunities is considered. It is shown how investment activity can be driven by the influence that the prospect of social learning has on the option value of investment. In this context, episodes of high investment activity result from a speculative motive, and the expected short-run profitability of new investment opportunities may inadequately reflect the entrepreneurs' incentive to invest.

Date: 2004
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