Learning and payoff externalities in an investment game

Chiara Margaria

Games and Economic Behavior, 2020, vol. 119, issue C, 234-250

Abstract: This paper examines the interplay of informational and payoff externalities in a two-player irreversible investment game. Each player learns about the quality of his project by observing a private signal and the action of his opponent. I characterize the unique symmetric equilibrium in a timing game that features a second-mover advantage, allowing for arbitrary correlation in project qualities. Despite private learning, the game reduces to a stochastic war of attrition. In contrast to the case of purely informational externalities, all investments happen at the same real time instant—irrespective of the sign of the correlation—and beliefs never get trapped in a no-learning region, provided that the second-mover advantage is sufficiently high.

Keywords: Irreversible investment; Payoff externalities; War of attrition; Real option (search for similar items in EconPapers)
JEL-codes: D82 D83 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:119:y:2020:i:c:p:234-250

DOI: 10.1016/j.geb.2019.11.006

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