Divergent Expectations, R & D Expenditures and Technical Progress

This paper deals with the problem of whether diversity of beliefs or consensus leads to a higher level of R and D spending in an industry, or a faster rate of technical progress, or a lower price for the industry's product. The answer depends upon characteristics of the demand function for industry output as well as the density functions reflecting probability beliefs of firm managers. Sufficient conditions are given for consensus (diversity) to ''pay'' in terms of R and D spending and/or the rate of technological progress, and R and D spending under market incentives is contrasted with an "optimal" level of R and D expenditures. The analysis is illustrated in more detail for the case of exponential density functions.