chapter  5
21 Pages


A rational agent explores at an intensity such that the marginal cost of a little more effort equals the expected marginal payoff from the extra effort. However when property rights on discoveries are imperfect or the organization of search is chaotic one expects much effort in exploration to be wasted or at least to exceed some sensible level. An extreme version of this argument is that the total costs of search may be very close to the average total payoff. In this case expected payoff is said to be dissipated by excessive search activity. We address some of these matters below. With decentralized exploration, agent Vs success can be agent y’s misfortune since additions to known stocks inevitably lower current prices. This spillover could be expected to affect the pace of exploration in total. Information spillovers lead to “gold rushes.” If discoverer i cannot realize or claim completely the value of his or her discovery, others rush in to free ride on / ’s discovery by claiming part of the discovery for themselves.