Rational exuberance

Paul Heidhues () and Nicolas Melissas

European Economic Review, 2012, vol. 56, issue 6, 1220-1240

Abstract: We study a two-player investment game with information externalities. Necessary and sufficient conditions for a unique symmetric switching equilibrium are provided. When public news indicates that the investment opportunity is very profitable, too many types are investing early and investments should therefore be taxed. Conversely, any positive investment tax is suboptimally high if the public information is sufficiently unfavorable.

Keywords: Information externality; Social learning; Strategic waiting; Delay; Information cascade (search for similar items in EconPapers)
JEL-codes: D62 D83 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:56:y:2012:i:6:p:1220-1240

DOI: 10.1016/j.euroecorev.2012.05.010

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