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

Listed author(s):
  • Timo Goeschl

    ()

    (University of Heidelberg, Department of Economics)

  • Grischa Perino

    ()

    (University of Heidelberg, Department of Economics)

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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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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  2. Bosetti, Valentina & Tavoni, Massimo, 2009. "Uncertain R&D, backstop technology and GHGs stabilization," Energy Economics, Elsevier, vol. 31(Supplemen), pages 18-26.
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  8. Marc Baudry, 2000. "Joint Management of Emission Abatement and Technological Innovation for Stock Externalities," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 16(2), pages 161-183, June.
  9. Michael Grubb, Carlo Carraro and John Schellnhuber, 2006. "Technological Change for Atmospheric Stabilization: Introductory Overview to the Innovation Modeling Comparison Project," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 1-16.
  10. Baker, Erin & Adu-Bonnah, Kwame, 2008. "Investment in risky R&D programs in the face of climate uncertainty," Energy Economics, Elsevier, vol. 30(2), pages 465-486, March.
  11. Chakravorty, Ujjayant & Roumasset, James & Tse, Kinping, 1997. "Endogenous Substitution among Energy Resources and Global Warming," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1201-1234, December.
  12. Makris, Miltiadis, 2001. "Necessary conditions for infinite-horizon discounted two-stage optimal control problems," Journal of Economic Dynamics and Control, Elsevier, vol. 25(12), pages 1935-1950, December.
  13. Grischa Perino, 2008. "The merits of new pollutants and how to get them when patents are granted," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 40(3), pages 313-327, July.
  14. 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.
  15. Baker, Erin & Shittu, Ekundayo, 2008. "Uncertainty and endogenous technical change in climate policy models," Energy Economics, Elsevier, vol. 30(6), pages 2817-2828, November.
  16. Partha Dasgupta & Geoffrey Heal, 1974. "The Optimal Depletion of Exhaustible Resources," Review of Economic Studies, Oxford University Press, vol. 41(5), pages 3-28.
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