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Irreversible investment and the value of information gathering
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Sgroi, Daniel (2003) Irreversible investment and the value of information gathering. Economics Bulletin, Vol.21 (No.4). ISSN 1545-2921.
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Official URL: http://www.economicsbulletin.com/
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 | ||||
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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 | ||||
Official Date: | 2003 | ||||
Dates: |
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Volume: | Vol.21 | ||||
Number: | No.4 | ||||
Status: | Peer Reviewed | ||||
Publication Status: | Published | ||||
Date of first compliant deposit: | 22 December 2015 | ||||
Date of first compliant Open Access: | 22 December 2015 | ||||
Funder: | AEA Technology (Firm) |
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