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Innovation and information acquisition under time inconsistency and uncertainty

Sophie Chemarin and Caroline Orset ()

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Abstract: When an agent invests in new industrial activities, he has a limited initial knowledge on his project's returns. Acquiring information allows him both to reduce the uncertainty on the dangerousness of this project and to limit potential damages on people health and on the environment that it might cause. In this paper, we study whether there exist situations where the agent does not acquire information. We find that an agent with time-consistent preferences, as well as an agent with hyperbolic ones will acquire information unless its cost exceeds the direct benefit they could get with this information. Nevertheless, a hyperbolic agent may remain strategically ignorant and, when he does acquire information, he will acquire less than a time consistent type. Moreover, a hyperbolic discounting type who behaves as a time-consistent agent in the future is more inclined to stay ignorant. We then emphasize that this strategic ignorance depends on the degree of the information's precision. Finally, we analyse the role that existing liability rules could play as an incentive to acquire information under uncertainty and regarding the form of the agent's preferences.

Keywords: liability rules.; hyperbolic discounting preferences; time inconsistency; self-control; uncertainty; information acquisition; innovation; information acquisition; uncertainty; self-control; time incon- sistency; hyperbolic discounting preferences; liability rules (search for similar items in EconPapers)
Date: 2011
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Published in Geneva Risk and Insurance Review, 2011, 36 (2), pp.132-173. ⟨10.1057/grir.2010.9⟩

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Related works:
Journal Article: Innovation and Information Acquisition under Time Inconsistency and Uncertainty (2011) Downloads
Working Paper: Innovation and information acquisition under time inconsistency and uncertainty (2008) Downloads
Working Paper: Innovation and Information Acquisition Under Time Inconsistency and Uncertainty (2008) Downloads
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DOI: 10.1057/grir.2010.9

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