Informational externalities and strategic interaction

Abstract

This thesis studies the role of uncertainty and informational externalities in strategic interaction. In the presence of informational externalities, the incentives of strategic agents to invest in innovative and risky activities are affected by different monitoring structures and monitoring imperfections. A fast and perfect information transmission is not necessarily optimal due to the strong incentives of firms to free-ride on the experimentation efforts of others. Incomplete interaction structures or monitoring imperfections such as uncertainties in the patent system can encourage firms to invest in R&D and thereby increase welfare.