Research and Development of a Backstop Energy Technology in a Growing Economy

The sequential search for a backstop energy technology is examined using an optimal growth model with an exhaustible energy resource. It is assumed that an economic planner periodically reviews the outcomes of a stochastic R&D process. A stopping rule for R&D is obtained in terms of a minimum acceptable quality level for the innovation. The dependence of the quality standard upon capital and natural resource stocks and on the state of basic research is analysed.