The consequences of endogenizing information for the performance of a sequential decision procedure

Abstract

We analyse the implications of endogenizing information collection and reputational concerns for the performance of a sequential decision structure. In this model, two agents decide in a sequence whether to implement a public project. The cost of gathering information is private. We derive two results. First, endogenizing information replaces the herding problem with a free-rider problem. Second, endogenizing information aggravates the distortionary effect of reputational concerns.