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Herd behaviour as an incentive scheme

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  • Nicolas Melissas

Abstract

We consider a set-up in which firms sequentially adopt a technology. The technology is a public good. Late movers, upon observing the early movers adopting the old technology, (partly) infer that the new technology does not exist. This hampers their incentives to innovate. Early movers anticipate this and rather exert effort to try to invent the new technology. Hence, in our model herding reduces free-rider problems and may - in the presence of switching costs - even increase efficiency. Copyright Springer-Verlag Berlin/Heidelberg 2005

Suggested Citation

  • Nicolas Melissas, 2005. "Herd behaviour as an incentive scheme," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 26(3), pages 517-536, October.
    • Handle: RePEc:spr:joecth:v:26:y:2005:i:3:p:517-536
    DOI: 10.1007/s00199-004-0530-4
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    Cited by:

    1. VERGARI, Cecilia, 2004. "Herd behaviour, strategic complementarities and technology adoption," LIDAM Discussion Papers CORE 2004063, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    2. Andonova, Veneta & Rodriguez, Yeny & Sanchez, Ivan Dario, 2013. "When waiting is strategic: Evidence from Colombian M&As 1995–2008," Journal of Business Research, Elsevier, vol. 66(10), pages 1736-1742.
    3. Amy Wenxuan Ding & Shibo Li, 2019. "Herding in the consumption and purchase of digital goods and moderators of the herding bias," Journal of the Academy of Marketing Science, Springer, vol. 47(3), pages 460-478, May.
    4. Wagner, Peter A. & Klein, Nicolas, 2022. "Strategic investment and learning with private information," Journal of Economic Theory, Elsevier, vol. 204(C).
    5. Nilkanth Kumar & Nirmal Kumar Raut & Suchita Srinivasan, 2022. "Herd behavior in the choice of motorcycles: Evidence from Nepal," CER-ETH Economics working paper series 22/366, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.

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