Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/178671 
Title: 

Bandwagon investment equilibrium of a preemption game

The document was removed on behalf of the author(s)/ the editor(s).

Year of Publication: 
2018
Series/Report no.: 
Economics Discussion Papers No. 2018-39
Publisher: 
Kiel Institute for the World Economy (IfW), Kiel
Abstract: 
In stochastic and competitive environments, investors face an investment dilemma because the environments provide conflicting incentives. Empirical research reports various behaviors exhibited by investors, including voluntary concurrent investments, which are called bandwagon investments. However, the current theoretical understanding is still limited in explaining under which condition the investment bandwagon effect occurs. The authors investigated the closed-loop subgame perfect equilibrium of an investment timing game that describes voluntary simultaneous investments. They showed that investors are on the investment bandwagon when the second mover's additional profit rate exceeds a threshold value. Otherwise, investors sequentially invest. It explains the frequently observed investment herd effect. Moreover, it shows that the investment bandwagon effect does not exist for entering firms.
Subjects: 
option exercise games
preemption games
bandwagon investment
closed-loop equilibrium
JEL: 
C73
D43
D92
L13
Creative Commons License: 
cc-by Logo
Document Type: 
Working Paper

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The document was removed on behalf of the author(s)/ the editor(s) on: January 2, 2019


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