A Rational Expectations Model of User Content Generation and Consumption

This paper considers the creation and consumption of content on user generated content (UGC) platforms, e.g., reviews, articles, chat, videos, etc. On these platforms, users’ expectations regarding the participation of others on the site become germane to their own involvement levels. Accordingly, we develop a dynamic rational expectations equilibrium model of joint consumption and generation of information. We estimate the model on a novel data set from a large Internet forum site and offer recommendations regarding site content generation (SGC) strategies. Results indicate that ignoring expectations leads to erroneous inferences about consumer behavior, and that these beliefs have important implications for the marketing of UGC sites. We find site posting is more effective than UGC at creating a self-sustaining network, but once the network tips, site generated content does little to increase usage. For mature networks, we estimate SGC elasticities of .5% to 1% depending on the content quality.