The Econometric Society An International Society for the Advancement of Economic Theory in its Relation to Statistics and Mathematics
Home Contacts
Econometrica

New Journals

Econometrica
Editorial Board
Journal News

Monograph Series

September 1994 - Volume 62 Issue 5 Page 1065 - 1085


p.1065


Information Revelation and Strategic Delay in a Model of Investment

Christophe Chamley
Douglas Gale

Abstract

We model investment as an $N$-player game with a pure informational externality. Each player's payoff depends only on his own action and the state of nature. However, because a player's action reveals his private information, players wait to see what other players will do. Equilibrium is inefficient because delay is costly and information is imperfectly revealed. We characterize the unique symmetric perfect Bayesian equilibrium and study the robustness of delay, which turns out to be sensitive to the reaction speed and the number of players. We establish the following results. (i) When the period length is very short, the game ends very quickly and there is a form of herding or informational cascade which results in a collapse of investment. (ii) As the period length increases, the possibility of herding disappears. (iii) As the number of players increases, the rate of investment and the information flow are eventually independent of the number of players; adding more players simply increases the number who delay. (iv) In the limit, the time-profile of investment is extreme, a period of low investment followed either by an investment surge or a collapse.

Full content Login                                    

Note: to view the fulltext of the article, please login first and then click the "full content" button. If you are based at a subscribing Institution or Library or if you have a separate access to JSTOR/Wiley Online Library please click on the "Institutional access" button.
Prev | All Articles | Next
Go to top
Membership



Email me my password
Join/Renew
Change your address
Register for password
Require login:
Amend your profile
E-mail Alerting
The Society
About the Society
Society News
Society Reports
Officers
Fellows
Members
Regions
Meetings
Future Meetings
Past Meetings
Meeting Announcements
Google
web this site
   
Wiley-Blackwell
Site created and maintained by Wiley-Blackwell.
Comments? Contact customsiteshelp@wiley.com
To view our Privacy Policy, please click here.