We study the effect of animal spirits on the composition of aggregate R&D, the consumption level and economic growth in a tournament model of horizontal and vertical R&D. By considering a full lab-equipment specification, the model predicts a positive effect of animal spirits on the...

We revisit the issue of self-fulfilling "waves of enthusiasm" as stationary rational expectations equilibria in tournament models of horizontal and vertical R&D. By considering a lab-equipment specification, the model predicts a positive effect of animal spirits on the balanced-growth-path (BGP)...