On the Interplay of Informational Spillovers and Payoff Externalities

Lars Frisell

RAND Journal of Economics, 2003, vol. 34, issue 3, 582-92

Abstract: Informational spillovers induce agents to outwait each other's actions in order to make more-informed decisions. If waiting is costly, we expect the best-informed agent, who has the least to learn from other agents' decisions, to take the first action. I study the interplay between informational spillovers and a direct payoff externality. I show that when the payoff externality is positive or relatively weak, the above intuition is validated. On the other hand, if the externality is negative and strong, the best-informed agent has the most to gain from outwaiting the other. Copyright 2003 by the RAND Corporation.

Date: 2003
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