Herd behaviour as an incentive scheme

Nicolas Melissas

Economic Theory, 2005, vol. 26, issue 3, 517-536

Abstract: We consider a set-up in which firms sequentially adopt a technology. The technology is a public good. Late movers, upon observing the early movers adopting the old technology, (partly) infer that the new technology does not exist. This hampers their incentives to innovate. Early movers anticipate this and rather exert effort to try to invent the new technology. Hence, in our model herding reduces free-rider problems and may - in the presence of switching costs - even increase efficiency. Copyright Springer-Verlag Berlin/Heidelberg 2005

Keywords: Free-rider problem; Public good; Information externality; Herd behaviour; Social learning. (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (5)

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Working Paper: Herd Behaviour as an Incentive Scheme (2000)
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DOI: 10.1007/s00199-004-0530-4

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