Managing User-Generated Content: A Dynamic Rational Expectations Equilibrium Approach

This paper considers the creation and consumption of content on user generated content platforms, e.g., reviews, articles, chat, videos, etc. On these platforms, users’ expectations regarding the amount and timing of participation by others becomes germane to their own involvement levels. Accordingly, we develop a dynamic rational expectations equilibrium model of joint consumption and generation of information. We estimate the model on a novel data set from a large Internet forum site and offer recommendations regarding strategies of managing sponsored content and content quality. We find sponsoring content can be effective at creating a self-sustaining network, but once the network tips, sponsored content does little to increase usage.