Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2003-03-14
Number: 03-021/1
Author-Name: Otto H. Swank
Author-Email: swank@few.eur.nl
Author-Workplace-Name: Faculty of Economics, Erasmus University Rotterdam
Author-Name: Bauke Visser
Author-Email: bvisser@few.eur.nl
Author-Workplace-Name: Faculty of Economics, Erasmus University Rotterdam
Title: The Consequences of Endogenizing Information for Herd Behavior
Abstract: In models of sequential decision making herd behaviour occurs if the signals smart(dumb) agents receive are (un)correlated and if agents have reputational concerns. We show thatintroducing costly effort to become informed about project payoffs (i) eliminates herdbehaviour and (ii) shifts attention from the incentives for agent 2 to herd to agent 1 to exerteffort. While the first agent anticipates the second agent's behaviour, his influence is onlypartial. The unique equilibrium either implies delegation to the first agent; to the secondagent; or has both agents participating.
Classification-JEL: D72; D82.
Keywords: Reputation; herd behaviour; information collection.
File-Url: https://papers.tinbergen.nl/03021.pdf
File-Format: application/pdf
File-Size: 217996 bytes
Handle: RePEc:tin:wpaper:20030021