Collective reputation with stochastic production and unknown willingness to pay for quality
Article dans une revue: In many cases, consumers cannot observe a single firm’s investment in environmental quality or safety, but only the average quality of the industry. The outcome of the investment is stochastic, since firms cannot control perfectly the technology or external factors that may affect production. In addition, firms do not know consumers’ valuation of quality. We characterize the solution of the firms’ investment game and show that the value of stopping investments when firms are already investing in quality can be negative when the free-riding incentives dominate. The existence of systematic uncertainty on the outcome of investment slows down investment in quality, compared to a situation without uncertainty. The uncertainty on consumers’ willingness to pay for quality can speed up or slow down investment. We also obtain the counterintuitive result that information acquisition may decrease the overall level of quality.
Auteur(s)
Fulvio Fontini, Katrin Millock, Michele Moretto
Revue
- Environmental Economics and Policy Studies
Date de publication
- 2018
Mots-clés JEL
Mots-clés
- Collective reputation
- Dynamic game
- Real options
- Stochastic quality
Pages
- 387-410
URL de la notice HAL
Version
- 1
Volume
- 20