Decision Frameworks and the Investment in R&D

Erin Baker, Olaitan Olaleye and Lara Aleluia Reis
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Erin Baker: Department of Mechanical and Industrial Engineering, College of Engineering, University of Massachusetts, Amherst, MA
Olaitan Olaleye: Department of Mechanical and Industrial Engineering, College of Engineering, University of Massachusetts, Amherst, MA
Lara Aleluia Reis: Centro Euro-Mediterraneo per i Cambiamenti Climatici, Fondazione Eni Enrico Mattei (FEEM)

No 2015.42, Working Papers from Fondazione Eni Enrico Mattei

Abstract: In this paper we provide an overview of decision frameworks aimed at crafting an energy technology Research & Development portfolio, based on the results of three large expert elicitation studies and a large scale energy-economic model. We introduce importance sampling as a technique for integrating elicitation data and large IAMs into decision making under uncertainty models. We show that it is important to include both parts of this equation – the prospects for technological advancement and the interactions of the technologies in and with the economy. We find that investment in energy technology R&D is important even in the absence of climate policy. We illustrate the value of considering dynamic two-stage sequential decision models under uncertainty for identifying alternatives with option value. Finally, we consider two frameworks that incorporate ambiguity aversion. We suggest that these results may be best used to guide future research aimed at improving the set of elicitation data.

Keywords: Decision Making Under Uncertainty; Climate Change; Stabilization Pathways; Energy technology; Ambiguity Aversion (search for similar items in EconPapers)
JEL-codes: Q42 (search for similar items in EconPapers)
Date: 2015-05
New Economics Papers: this item is included in nep-cse, nep-ene, nep-env, nep-ino, nep-knm and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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