Publication Date: February 2015
Revision Date: August 2020
We build a model studying the eﬀect of an economy’s potential for social learning on the adoption of innovations of uncertain quality. Provided consumers are forward-looking (i.e., recognize the value of waiting for information), we show how quantitative and qualitative features of the learning environment aﬀect observed adoption dynamics, welfare, and the speed of learning. Our analysis has two main implications. First, we identify environments that are subject to a “saturation eﬀect,” whereby increased opportunities for social learning can slow down adoption and learning and do not increase consumer welfare, possibly even being harmful. Second, we show how diﬀerences in the learning environment translate into observable diﬀerences in adoption dynamics, suggesting a purely informational channel for two commonly documented adoption patterns—S-shaped and concave curves.
Keywords: Innovation adoption, Social learning, Informational free-riding, Strategic experimentation, Exponential bandits
JEL Classification Codes: D81, D83, O33See CFDP Version(s): CFDP 1988