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Published 1982 | public
Book Section - Chapter

Divergent expectations and R&D expenditures

Abstract

This paper is concerned with the role that expectations play in the allocation of funds for research and development in an industry. In particular, we are interested in the question as to whether differences of beliefs among firm managers in an industry as to the prospective payoffs from R&D tend to increase or decrease the amount of R&D spending within an industry. For example, when each firm manager believes that the other firms have as good a chance of producing a profitable innovation at his firm, do differences of beliefs among firm managers as to the chances of success encourage or discourage R&D expenditures in the industry as compared to commonly shared beliefs as to the chances of success? To put it another way, does consensus or diversity "pay" in the sense of increasing the level of R&D expenditures in an industry? Viewed in this way, the problem considered in this paper is related to that of assessing the effects of government long-term forecasts as to future prospects for an industry (assuming they are believed by firms in the industry) on R&D spending.

Additional Information

© 1982 Praeger Press. This research was supported in part under a grant from the Department of Energy. We also wish to thank Forrest Nelson and Dave Grether for their help in formulating the model of this paper. The intellectual stimulus for the paper comes from many conversations with Burton Klein (1977) concerning issues discussed in his recent work; but he should not be held responsible for the specifics of the model or our interpretations of the problems posed here. Formerly SSWP 361.

Additional details

Created:
August 19, 2023
Modified:
October 17, 2023