Decision Frameworks and the Investment in R&D

Energy Policy, Volume 80, May 2015, Pages 275-285, ISSN 0301-4215

FEEM Working Paper No. 42.2015

Posted: 14 May 2015

See all articles by Erin Baker

Erin Baker

University of Massachusetts at Amherst - Mechanical and Industrial Engineering Department

Olaitan Olaleye

University of Massachusetts Amherst

Lara Reis

Fondazione Eni Enrico Mattei (FEEM)

Date Written: May 13, 2015

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

JEL Classification: Q42

Suggested Citation

Baker, Erin and Olaleye, Olaitan and Reis, Lara, Decision Frameworks and the Investment in R&D (May 13, 2015). Energy Policy, Volume 80, May 2015, Pages 275-285, ISSN 0301-4215; FEEM Working Paper No. 42.2015. Available at SSRN: https://ssrn.com/abstract=2605767

Erin Baker (Contact Author)

University of Massachusetts at Amherst - Mechanical and Industrial Engineering Department ( email )

Department of Operations and Information Managemen
Amherst, MA 01003
United States

Olaitan Olaleye

University of Massachusetts Amherst ( email )

Department of Operations and Information Managemen
Amherst, MA 01003
United States

Lara Reis

Fondazione Eni Enrico Mattei (FEEM) ( email )

C.so Magenta 63
Milano, 20123
Italy

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