Producing energy in a stochastic environment: Switching from non-renewable to renewable resources

Alejandro Mosiño

Resource and Energy Economics, 2012, vol. 34, issue 4, 413-430

Abstract: In this paper, we study the determinants of switching from non-renewable natural resource inputs to renewable resource inputs in energy production. We assume that the stocks of both natural resources are stochastic, and that the adoption of renewable resources is costly and irreversible. Our formulation gives raise to an optimal stopping/switching problem that cannot be solved analytically, then we turn to numerical simulations. Our results suggest that the optimal switching time depends not only on the uncertainty parameters, but also on energy demand, costs, and the relative productivity of the resources.

Keywords: Optimal switching time; Renewable resources; Non-renewable resources; Uncertainty; Irreversibility (search for similar items in EconPapers)
JEL-codes: C63 D81 Q20 Q30 Q40 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:resene:v:34:y:2012:i:4:p:413-430

DOI: 10.1016/j.reseneeco.2012.04.002

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