The previous chapter analyzed individual decisions and market equilibrium in a context of emergent public information – where tomorrow's weather, for example, will in due time become freely known to all. In contrast, this chapter deals with information that does not emerge autonomously but instead has to be produced or discovered by costly research.

Two kinds of socially new information can be distinguished. There is pure knowledge, desired for its own sake. Alternatively, information might be wanted only instrumentally, as an intermediate good making it possible to reduce the cost of producing hats or shoes or haircuts. We will be dealing only with the second, more materialistic type of knowledge.

A major incentive for incurring the cost of prying out Nature's secrets is that the discovered information will typically be private, allowing the researcher to improve his situation relative to uninformed parties. On the other hand, as will be seen, there are processes always at work tending to publicize private information. The costly efforts of discoverers may leak out and become costlessly emergent information for potential imitators, though possibly subject to intentional or unintentional garbling. In short, discovery is timely but expensive; imitation or second-hand learning is cheap, though possibly subject to distortion and delay.

The essential problems of the economics of research stem from the tensions between the two inter-related processes of discovery or invention versus dissemination of the information thus obtained.