Riding Free On The Signals Of Others

Kim Alexander-Cook, Dan Bernhardt and Joanne Roberts ()

No 927, Working Paper from Economics Department, Queen's University

Abstract: This paper looks at the incentives to free-ride on the information signaling of others and shows how this can lead to delay in productive activity and to a cascade of activity once information is signaled. In the presence of increasing returns to scale to a profitable project, an initial pioneer may have to incur short-term losses to signal the opportunity to others. Agents may prefer to defer entry in the hope that others will incur those losses and thereby convey the information. Free-riding incentives can be so strong that profitable projects may not be undertaken. Free-riding is worsened when potential entrants must first acquire a costless signal about the project, and this information acquisition is observed: not acquiring the information commits and agent not to incur the entry costs.

Keywords: signaling; increasing returns to scale; incomplete information; free-riding (search for similar items in EconPapers)
JEL-codes: D82 (search for similar items in EconPapers)
Pages: 21 pages
Date: 1995-08
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https://www.econ.queensu.ca/sites/econ.queensu.ca/files/qed_wp_927.pdf First version 1995 (application/pdf)

Related works:
Journal Article: Riding free on the signals of others (1998)
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Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:927

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