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Diversity of Opinion and Financing of New Technologies

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  • Allen, Franklin
  • Gale, Douglas

Abstract

The objective is to compare the effectiveness of financial markets and financial intermediaries in financing new industries and technologies in the presence of diversity of opinion. In markets, investors become informed about the details of the new industry or technology and make their own investment decisions. In intermediaries, the investment decision is delegated to a manager. She is the only one who needs to become informed, which saves on information costs, but investors may anticipate disagreement with her and be unwilling to provide funds. Financial markets tend to be superior when there is significant diversity of opinion and information is inexpensive.

Suggested Citation

  • Allen, Franklin & Gale, Douglas, 1998. "Diversity of Opinion and Financing of New Technologies," Working Papers 98-29, C.V. Starr Center for Applied Economics, New York University.
    • Handle: RePEc:cvs:starer:98-29
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    References listed on IDEAS

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    More about this item

    Keywords

    Diversity of opinion; investment; financial markets; financial intermediaries; delegation; Bayesian decision making; uncommon priors;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services

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