Department of Economics and Business Economics

Exploration in Teams and the Encouragement Effect: Theory and Evidence

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  • Emma von Essen
  • Marieke Huysentruyt, Strategy and Business Policy, HEC Paris, SITE, Stockholm School of Economics
  • ,
  • Topi Miettinen, Department of Economics, Hanken School of Economics, Helsinki, SITE, Stockholm School of Economics
This paper analyzes a two-person, two-stage model of sequential exploration, where both information and payoff externalities exist, and tests the derived hypotheses in the laboratory. We theoretically show that even when agents are self-interested and perfectly rational, the information externality induces an encouragement effect: a positive effect of first-player exploration on the optimality of the second-player exploring as well. When agents have other-regarding preferences and imperfectly optimize, the encouragement effect is strongest. The explorative nature of the game raises the expected surplus compared to a payoff equivalent public goods game. We empirically confirm our main theoretical predictions using a novel experimental paradigm. Our findings are relevant for motivating and managing groups and teams innovating not only for private but also, and especially so, for public goods.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages86
Publication statusPublished - 15 Aug 2019
SeriesEconomics Working Papers

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