Information, imitation and growth

This paper presents an analysis of the role of information in determining the growth and development prospects of economies. In an overlapping generations model, producers of capital choose between two types of technology-safe and risky. Depending on the information available, decision making may or may not be characterised by herd behaviour whereby each producer imitates the decisions of others in an information cascade. Multiple development regimes arise when the quality of information is determined endogenously through purposeful, but costly, activities. It is shown that both the prospect of transition between these regimes and the characteristics of the transition path can be very different in imitation-free and imitation-prone economies. © 2002 Elsevier Science B.V. All rights reserved.