Herd Behaviour as an Incentive Scheme

Abstract

This paper presents a model of technology invention in an emerging market. Managers wait and adopt the standard technology in the hope to free-ride on the effort level of another manager who may invent a superior technology. The more managers who adopt the standard technology, the more their successors believe that probably the superior technology doesn't exist. As this hampers the successors' incentives to innovate, herding in my model reduces the scope of strategic waiting.