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Can Communication Mitigate Strategic Delays in Investment Timing?

Author

Listed:
  • Ayse Gül Mermer

    (Tilburg University)

  • Sander Onderstal

    (University of Amsterdam)

  • Joep Sonnemans

    (University of Amsterdam)

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

Suggested Citation

  • Ayse Gül Mermer & Sander Onderstal & Joep Sonnemans, "undated". "Can Communication Mitigate Strategic Delays in Investment Timing?," Tinbergen Institute Discussion Papers 23-033/I, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20230033
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    File URL: https://papers.tinbergen.nl/23033.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    stochastic volatility; social cost of carbon; climate damage; Duffie-Epstein preference;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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