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Social Experimentation and Innovation Cycles

By Umberto Garfagnini and Bruno Strulovici


This paper studies social learning by a succession of forward-looking agents who endogenously choose their information according to the exploration-exploitation tradeoff at the heart of the experimentation paradigm. We analyze social experimentation with a continuum of interdependent technologies, emphasizing the distinction, fundamental in the literature on innovations, between radical and marginal innovations. We characterize alternating cycles between radical and marginal innovations, and find that radical innovation must stagnate in the long run for all parameters of our model. We also establish a negative relationship between past innovation successes and the magnitude of radical innovations

Topics: Social Learning, Experimentation, Innovation, R&D, Stagnation. JEL Codes, C73, D83, O3 We are grateful to Alessandro Bonatti, Steve Callander, Xavier Durand, Michael Mandler, Kiminori
Year: 2013
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