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On Backstops and Boomerangs: Environmental R&D under Technological Uncertainty

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Author Info

  • Timo Goeschl

    ()
    (University of Heidelberg, Department of Economics)

  • Grischa Perino

    ()
    (University of Heidelberg, Department of Economics)

Abstract

The literature on environmental R&D frequently studies innovation as a two-stage process, with a single R&D event leading from a conventional polluting technology to a perfectly clean backstop. We allow for uncertainty in innovation in that the new technology may turn out to generate a new pollution problem. R&D may therefore be optimally undertaken more than once. Using and externding recent results from multi-stage optimal control theory, we provide a full characterization of the optimal pollution and R&D policies. The optimal R&D program is strictly sequential and has an endogenous stopping point. Uncertainty drives total R&D effort and its timing.

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File URL: http://www.uni-heidelberg.de/md/awi/forschung/dp437.pdf
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Bibliographic Info

Paper provided by University of Heidelberg, Department of Economics in its series Working Papers with number 0437.

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Length: 40 pages
Date of creation: Jan 2007
Date of revision: Jan 2007
Handle: RePEc:awi:wpaper:0437

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Related research

Keywords: stock pollution; backstop technology; multi-stage optimal control; pollution thresholds; uncertainty;

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References

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  1. Just, Richard E. & Netanyahu, Sinaia & Olson, Lars J., 2005. "Depletion of natural resources, technological uncertainty, and the adoption of technological substitutes," Resource and Energy Economics, Elsevier, vol. 27(2), pages 91-108, June.
  2. Fischer, Carolyn & Toman, Michael & Withagen, Cees, 2002. "Optimal Investment in Clean Production Capacity," Discussion Papers dp-02-38, Resources For the Future.
  3. Marc Baudry, 2000. "Joint Management of Emission Abatement and Technological Innovation for Stock Externalities," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 16(2), pages 161-183, June.
  4. Heal, G., 1990. "The Optimal Use Of Exhaustible Resources," Papers fb-_90-10, Columbia - Graduate School of Business.
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Cited by:
  1. Baker, Erin & Shittu, Ekundayo, 2008. "Uncertainty and endogenous technical change in climate policy models," Energy Economics, Elsevier, vol. 30(6), pages 2817-2828, November.
  2. Tsur, Yacov & Zemel, Amos, 2012. "Dynamic and stochastic analysis of environmental and natural resources," Discussion Papers 120017, Hebrew University of Jerusalem, Department of Agricultural Economics and Management.
  3. Tiefenbeck, Verena & Staake, Thorsten & Roth, Kurt & Sachs, Olga, 2013. "For better or for worse? Empirical evidence of moral licensing in a behavioral energy conservation campaign," Energy Policy, Elsevier, vol. 57(C), pages 160-171.
  4. Pottier, Antonin & Hourcade, Jean-Charles & Espagne, Etienne, 2014. "Modelling the redirection of technical change: The pitfalls of incorporeal visions of the economy," Energy Economics, Elsevier, vol. 42(C), pages 213-218.
  5. Baker, Erin & Solak, Senay, 2011. "Climate change and optimal energy technology R&D policy," European Journal of Operational Research, Elsevier, vol. 213(2), pages 442-454, September.

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