Economic Theory

, Volume 31, Issue 3, pp 523–538 | Cite as

Learning Dynamics with Private and Public Signals

Research Article

Abstract

This paper studies the dynamics of learning in a model of technology adoption. Firms learn about an unknown technology by observing both private and public signals. Because of the externality associated with the public signal, the social planner has firms experiment more in the initial period of the model, relative to the market equilibrium. In certain cases, this more rapid generation of information results in the planner experimenting less in later periods of the model. In contrast, typical models with public signals result in the planner inducing more experimentation in all periods of the model relative to the market equilibrium.

Keywords

Social learning Two-armed bandits Free-rider problem Informational public good 

JEL Classification Numbers

D62 D81 D83 

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Copyright information

© Springer-Verlag 2006

Authors and Affiliations

  1. 1.US Department of Commerce, Bureau of Economic AnalysisOffice of the Chief Statistician BE-40WashingtonUSA

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