Who goes first? Strategic delay under information asymmetry

This paper considers a timing game in which heterogeneously informed agents have the option to delay an investment strategically to learn about its uncertain return from the experience of others. I study the effects of information exchange through strategic delay on longrun beliefs and outcomes. Investment decisions are delayed when the information structure prohibits informational cascades. When there is only moderate inequality in the distribution of information, equilibrium beliefs converge in the long-run, and there is an insufficient aggregate investment relative to the efficient benchmark. When the distribution of information is more skewed, there can be a persistent wedge in posterior beliefs between well and poorly informed agents, because the poorly informed tend to “drive out” the well-informed. ∗I am indebted to Martin Osborne, Colin Stewart, Ettore Damiano, Pauli Murto, Sven Rady, three anonymous referees, as well as participants at the European Econometric Society Meeting for valuable discussions, helpful comments and suggestions. Financial support by the German Science Foundation (DFG) through SFB/TR 15 is gratefully acknowledged. †Department of Economics, University of Bonn, Germany