Social experimentation with interdependent and expanding technologies

Umberto Garfagnini; Bruno Strulovici

doi:10.1093/restud/rdw008

Social experimentation with interdependent and expanding technologies

Umberto Garfagnini, Bruno Strulovici^*

^*Corresponding author for this work

Economics

Research output: Contribution to journal › Article › peer-review

5 Scopus citations

Abstract

How do successive, forward-looking agents experiment with interdependent and endogenous technologies? In this article, trying a radically new technology not only is informative of the value of similar technologies, but also reduces the cost of experimenting with them, in effect expanding the space of affordable technologies. Successful radical experimentation has mixed effects: it improves the immediate outlook for further experimentation but decreases the value and the marginal value of experimentation in a longer term, resulting in less ambitious "incremental" experimentation and in a reduced size of radical experimentation. Incremental experimentation lowers the option value of similar technologies, which may spur a new wave of radical experimentation. However, experimentation eventually stagnates for all parameters of the model.

Original language	English (US)
Article number	rdw008
Pages (from-to)	1579-1613
Number of pages	35
Journal	Review of Economic Studies
Volume	83
Issue number	4
DOIs	https://doi.org/10.1093/restud/rdw008
State	Published - Oct 1 2016

Funding

For their comments and suggestions, we are grateful to the editor, anonymous referees, Alessandro Bonatti, Steve Callander, Xavier Durand, Michal Fabinger, Michael Mandler, Philip Marx, Kiminori Matsuyama, Joel Mokyr, Francisco Ruiz-Aliseda, SimonWilkie, Huanxing Yang, and seminar participants at the Spring 2011 Midwest Theory Conference, Banco de México, and the 2012 North AmericanWinter Meeting of the Econometric Society. Strulovici gratefully acknowledges financial support from the NSF under Grant No. 1151410 and the Alfred P. Sloan Foundation.

Keywords

Correlated Arms
Experimentation
Innovation
Multi-Armed Bandit
R and D
Stagnation
Technologies

ASJC Scopus subject areas

Economics and Econometrics

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10.1093/restud/rdw008

Cite this

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Social experimentation with interdependent and expanding technologies

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