Sgroi, Daniel. (2003) Irreversible investment and the value of information gathering. Economics Bulletin, Vol.21 (No.4). ISSN 1545-2921

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Abstract

This note develops a model in which a firm has to decide whether to undertake an irreversible investment. The firm has the option to delay it's decision in an effort to observe the actions of other firms. It is shown that a problem, akin to the herding phenomenon also applies, despite the endogenous time framework. In the context of an investment decision this manifests itself as the failure of a positive-payoff project to be undertaken. The most novel finding is that attempts to overcome this difficulty by further information gathering will, as a side effect, generate additional delay which may be enough to offset the gains of any new information.

Item Type:	Journal Article
Subjects:	H Social Sciences > HB Economic Theory
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Investments -- Econometric models
Journal or Publication Title:	Economics Bulletin
Publisher:	Economics Bulletin
ISSN:	1545-2921
Date:	2003
Volume:	Vol.21
Number:	No.4
Status:	Peer Reviewed
Publication Status:	Published
Funder:	AEA Technology (Firm)
URI:	http://wrap.warwick.ac.uk/id/eprint/50069

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