On backstops and boomerangs: Environmental R&D under technological uncertainty

Timo Goeschl () and Grischa Sebastian Perino ()

Energy Economics, 2009, vol. 31, issue 5, pages 800-809

Abstract: In areas such as climate change, the recent economic literature has been emphasizing and addressing the pervasive presence of uncertainty. This paper considers a new and salient form of uncertainty, namely uncertainty regarding the environmental characteristics of [`]green' innovations. Here, R&D may generate both backstop technologies and technologies that turn out to involve a new pollution problem ([`]boomerangs'). In the optimum, R&D will therefore typically be undertaken more than once. Extending results from multi-stage optimal control theory, we present a tractable model with a full characterization of the optimal pollution and R&D policies and the role of uncertainty. In this setting, (i) the optimal R&D program is defined by a research trigger condition in which the decision-maker's belief about the probability of finding a backstop enters in an intuitive way; (ii) a decreasing probability of finding a backstop leads to the toleration of higher pollution levels, slower R&D, a slower turnover of technologies, and an ambiguous effect on the expected number of innovations; (iii) learning about the probability of a backstop is driven by failures only and leads to decreasing research incentives; and (iv) small to moderate delays in the resolution of technological uncertainty do not affect the optimal policy.

Keywords: Climate; change; Technological; change; Uncertainty; Backstop; technology; Multi-stage; optimal; control (search for similar items in EconPapers)
Date: 2009

Downloads: (external link)
http://www.sciencedirect.com/science/article/B6V7G ... 1c3bde7a799991e7bc7e
Full text for ScienceDirect subscribers only

Related works:
Working Paper: On Backstops and Boomerangs: Environmental R&D under Technological Uncertainty (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:eee:eneeco:v:31:y:2009:i:5:p:800-809

Access Statistics for this article

Energy Economics is edited by R. S. J. Tol and J. P. Weyant

More articles in Energy Economics from Elsevier
Series data maintained by Heidi Boesdal ().