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

  • 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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  1. Heal, Geoffrey M., 1993. "The optimal use of exhaustible resources," Handbook of Natural Resource and Energy Economics, in: A. V. Kneeseā€  & J. L. Sweeney (ed.), Handbook of Natural Resource and Energy Economics, edition 1, volume 3, chapter 18, pages 855-880 Elsevier.
  2. Carolyn Fischer & Cees Withagen & Michael Toman, 2004. "Optimal Investment in Clean Production Capacity," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 28(3), pages 325-345, July.
  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. 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.
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