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Ulric B. and Evelyn L. Bray Social Sciences Seminar

Tuesday, October 15, 2019
4:00pm to 5:00pm
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Baxter B125
Information acquisition and strategic investment timing
Erik Madsen, Assistant Professor, Department of Economics, New York University,

Abstract: Motivated by stylized facts in the market for entrepreneurial fundraising, we build a two-firm model of investment timing with endogenous information acquisition to study the interaction between investment delay and free-riding. There are three per­fect Bayesian equilibria of the model. In the unique symmetric equilibrium, both firms investigate the project simultaneously, while in the remaining asymmetric equilibria one firm leads the other in obtaining information and investing. Investment delay and free-riding arise only in the asymmetric equilibria, but nonetheless these equilibria im­prove aggregate welfare over or even Pareto-dominate the symmetric equilibrium when firms are patient.

Written with Rishabh Kirpalani

For more information, please contact Mary Martin by phone at 626-395-4571 or by email at mmartin@caltech.edu.