OPTIMAL R&D FOR NONRENEWABLE RESOURCES: THE CASE OF COST REDUCING TECHNOLOGY

Abstract

A model is developed to determine optimal R&D spending and completion time when R&D results in lower extraction costs of a nonrenewable resource deposit. Examples of R&D projects for which the model is designed are in‐situ leaching for mining and carbon dioxide injection in petroleum. The model is a combined R&D/nonrenewable resource model (CM). Results from the CM are compared to simulations of an R&D model which ignores the nonrenewable resource. The comparison demonstrates the importance of including resource parameters in the R&D spending model. The CM extends the literature by considering R&D spending and exhaustible natural resource production simultaneously. It demonstrates the importance of including the resource deposit when R&D affects the deposit. This is important because more accurate models of R&D will increase the profitability of the R&D projects.