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This paper shows,how,optimism,in the equity market,can bring welfare gains at the aggregate level, despite encouraging negative NPV investments at the …rm level. When equity prices a¤ect incentives to invest in R&D, optimism increases ex- ante optimally,the aggregate,R&D investment,and production. While consumers ex-post realise losses from their equity holdings, they receive gains from higher wages.,There are potential welfare gains because,the equity contract does not internalise the aggregate,productivity,gains from,the new,R&D product. Equity market optimism can generate Pareto improvement, if the R&D productivity is high and optimism,is long-lasting. JEL classi…cation: G12, O30, O40

Can Optimism about Technology Stocks be Good for Welfare? Positive Spillovers vs. Equity Market Losses