Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/73942
Authors: 
Bosetti, Valentina
Tavoni, Massimo
Year of Publication: 
2007
Series/Report no.: 
Nota di Lavoro, Fondazione Eni Enrico Mattei 6.2007
Abstract: 
This paper analyses optimal investments in innovation when dealing with a stringent climate target and with the uncertain effectiveness of R&D. The innovation needed to achieve the deep cut in emissions is modelled by a backstop carbon-free technology whose cost depends on R&D investments. To better represent the process of technological progress, we assume that R&D effectiveness is uncertain. By means of a simple analytical model, we show how accounting for the uncertainty that characterizes technological advancement yields higher investments in innovation and lower policy costs. We then confirm the results via a numerical analysis performed with a stochastic version of WITCH, an energy-economy-climate model. The results stress the importance of a correct specification of the technological change process in economy-climate models.
Subjects: 
Climate Change
Information and Uncertainty
Environmental Policy
Optimal R&D Investments
JEL: 
O32
Q54
Q55
Document Type: 
Working Paper

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