Policy Uncertainty and Technology Adoption

Dehghani Mohammad H. ()
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Dehghani Mohammad H.: Faculty of Economics, University of Tehran, N Kargar Ave, Tehran, Iran

The B.E. Journal of Economic Analysis & Policy, 2014, vol. 14, issue 4, 1405-1430

Abstract: This paper considers technology adoption under both technological and subsidy uncertainties. Uncertainty in subsidies for green technologies is considered as an example. Technological progress is exogenous and modeled as a jump process with a drift. The analytical solution is presented for cases when there is no subsidy uncertainty and when the subsidy changes once. The case when the subsidy follows a time invariant Markov process is analyzed numerically. The results show that improving the innovation process raises the investment thresholds. When technological jumps are small or rare, this improvement reduces the expected time before technology adoption. However, when technological jumps are large or abundant, this improvement may raise this expected time.

Keywords: real options; technology adoption; policy uncertainty; clean technology; regime switching (search for similar items in EconPapers)
JEL-codes: C63 D81 O33 Q58 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1515/bejeap-2013-0167

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