Rational exuberance

We study a two-player investment game with information externalities. Necessary and sufficient conditions for a unique symmetric switching equilibrium are provided. When public news indicates that the investment opportunity is very profitable, too many types are investing early and investments should therefore be taxed. Conversely, any positive investment tax is suboptimally high if the public information is sufficiently unfavorable.

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Year of publication:	2012
Authors:	Heidhues, Paul ; Melissas, Nicolas
Published in:	European Economic Review. - Elsevier, ISSN 0014-2921. - Vol. 56.2012, 6, p. 1220-1240
Publisher:	Elsevier
Subject:	Information externality \| Social learning \| Strategic waiting \| Delay \| Information cascade

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Type of publication:	Article
Classification:	D62 - Externalities ; D83 - Search, Learning, Information and Knowledge
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10010597474