FEEM working papers "Note di lavoro"
Date: 12/5/2015

Decision Frameworks and the Investment in R&D


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

Type: Journal
JEL n.: Q42
JEL: Energy Policy
Pages: Vol. 80, Pages 275-285
Keywords: Decision Making Under Uncertainty, Climate Change, Stabilization Pathways, Energy technology, Ambiguity Aversion


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.

Suggested citation: Erin Baker, Olaitan Olaleye, Lara Aleluia Reis, Decision frameworks and the investment in R&D, Energy Policy, Volume 80, May 2015, Pages 275-285, ISSN 0301-4215, http://dx.doi.org/10.1016/j.enpol.2015.01.027.

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