CFDP 1991

Learning to Disagree in a Game of Experimentation

Author(s): 

Publication Date: March 2015

Pages: 51

Abstract: 

We analyse strategic experimentation in which information arrives through fully revealing, publicly observable “breakdowns.” With hidden actions, there exists a unique equilibrium that involves randomization over stopping times. This randomization induces belief disagreement on the equilibrium path. When actions are observable, the equilibrium is pure, and welfare improves. We analyse the role of policy interventions such as subsidies for experimentation and risk-sharing agreements. We show that the optimal risk-sharing agreement restores the first-best outcome, independent of the monitoring structure.

Keywords: 

Experimentation, Free-riding, Mixed strategies, Monitoring, Delay

JEL Classification Codes:  C73, D83, O33