Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/127250 
Year of Publication: 
2007
Series/Report no.: 
Discussion Paper Series No. 437
Publisher: 
University of Heidelberg, Department of Economics, Heidelberg
Abstract: 
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.
Subjects: 
stock pollution
backstop technology
multi-stage optimal control
pollution thresholds
uncertainty
JEL: 
Q55
Q53
O32
C61
Document Type: 
Working Paper

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