Public Investments in Energy Technology

Public Investments in Energy Technology

Michael P. Gallaher, Albert N. Link and Alan C. O’Connor

Escalating energy demand may be the most important issue facing the United States and the world today. There is little disagreement that research and development (R & D) is needed to develop new energy technologies for the future; however, there is less agreement over the specific research agenda to be pursued and how that agenda is funded. This book addresses the social importance of new energy technologies, illustrates policy-relevant applications of evaluation techniques and proposes new perspectives for a US energy investment strategy.

Chapter 3: Evaluation of Public Investments in New Technology

Michael P. Gallaher, Albert N. Link and Alan C. O’Connor

Subjects: economics and finance, energy economics, public finance, public sector economics


ECONOMETRIC-BASED METHODOLOGIES One set of evaluation methodologies that are used to quantify the economic impact of public investments in R&D (and we are assuming that R&D leads to new technology) is often based on econometric models, or more specifically one set is based on models that are estimated using econometric methods.1 These models are not independent of the data that are available. Generally, the data, when available, pertain to the unit’s (hereafter the unit is referred to as a firm for consistency in the discussion that follows) performance before and after the public sector R&D program. To illustrate, define a performance variable for the ith firm as Pi. Consider two series of data. The first is a time series of data on the observed performance of k firms, i 5 1 to i 5 k, before and after the effect from the public sector R&D program. After the public sector R&D program is operating, each of the k firms will be affected but not necessarily to the same degree. If performance data are available from time t 5 0 to t 5 n, and if the public sector R&D program became effective at t 5 t*, then the relevant comparison is between the performance of the k firms before the R&D program, Pi, for t 5 0 to t 5 t*, and their performance after the R&D program, Pi, for t 5 t* to t 5 n. The second series of data...

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