Title

Learning to Disagree in a Game of Experimentation

Document Type

Discussion Paper

Publication Date

3-1-2015

CFDP Number

1991

CFDP 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.

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