Template-Type:  ReDIF-Paper 1.0
Series:  Tinbergen Institute Discussion Papers
Creation-Date: 06/22/2023
Number: 23-033/I
Author-Name: Ayse Gül Mermer
Author-Workplace-Name: Tilburg University
Author-Name: Sander Onderstal
Author-Workplace-Name: University of Amsterdam
Author-Name: Joep Sonnemans
Author-Workplace-Name: University of Amsterdam
Title: Can Communication Mitigate Strategic Delays in Investment Timing?
Abstract: In economic environments, decision-makers can strategically delay irreversible investments to learn
from the actions of others. This creates free-riding incentives and can lead to socially suboptimal
outcomes. We experimentally examine if and how communication mitigates this free-riding problem in
an investment-timing game. In our baseline investment-timing game, participants choose when to invest
in a nonrival project with uncertain returns, in groups of two or four players. The earliest investor of
the group bears the costs of investment while everyone in the group benefits if the project reveals high
returns. If more investors invest at the same time, they share the costs. In the communication treatment,
subjects can freely communicate before choosing the investment time. We find that in groups of two
players, communication increases cooperation and leads to significantly earlier investments. In groups
of four players, however, communication significantly reduces delay only in the first period of
interaction, but not in the aggregate over all periods
Classification-JEL: C72, C92, D83, H41
Keywords: stochastic volatility, social cost of carbon, climate damage, Duffie-Epstein
preference
File-Url: https://papers.tinbergen.nl/23033.pdf
File-Format:  application/pdf
File-Size: 2.043.768 bytes
Handle:  RePEc:tin:wpaper:20230033