Research in energy conversion technologies: Policy instruments and uncertainty

In this paper, the effects of uncertainty and of various policy instruments on the lengthand attractiveness of private research projects are studied. Research expenditure can beregained from quasi-rents that are earned by exploiting patents on the fruits of research.The accumulation of knowledge is modeled as a Poisson process. Within the context ofthe model, we show that firms shorten the duration of research projects when uncertaintyin knowledge accumulation increases or when, for example, the validity of patents isprolonged. The underlying mechanisms are due to Jensen™s Inequality and a real-optioneffect. Furthermore, we develop a smooth pasting condition for a class of Poissonprocesses.