Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/189247
Authors: 
Alexander-Cook, Kim
Bernhardt, Dan
Roberts, Joanne
Year of Publication: 
1995
Series/Report no.: 
Queen's Economics Department Working Paper 927
Abstract: 
This paper looks at the incentives to free-ride on the information signaling of others and shows how this can lead to delay in productive activity and to a cascade of activity once information is signaled. In the presence of increasing returns to scale to a profitable project, an initial pioneer may have to incur short-term losses to signal the opportunity to others. Agents may prefer to defer entry in the hope that others will incur those losses and thereby convey the information. Free-riding incentives can be so strong that profitable projects may not be undertaken. Free-riding is worsened when potential entrants must first acquire a costless signal about the project, and this information acquisition is observed: not acquiring the information commits and agent not to incur the entry costs.
Subjects: 
increasing returns to scale
incomplete information
free-riding
signaling
JEL: 
D82
Document Type: 
Working Paper
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