Conclusion

Abstract

To alleviate the increasing scarcity imposed by exhaustible resources, society can augment its resource base through an R & D program to find a substitute, on the one hand, or through exploratory activities to discover new reserves, on the other hand. Throughout this book, the central question of dynamic decision timing of R & D and exploration is completely worked out. The backstop technology providing the inexhaustible substitute — thus, an infinite resource base — is a limiting case of the exploration problem where potential reserves to be found are finite. We have assumed that the R & D program can be started by making a once-and-for-all fixed capital expenditure at any time, and technological breakthrough might happen at some random time in the future. The characteristics of the new technology are assumed to be known with certainty even before the R & D program begins. The sole source of uncertainty on which we have chosen to study is the arrival date of invention.