Innovation Without Magic Bullets:Stock Pollution and R&D Sequences

We study the optimal R&D trajectory in a setting where new technologiesare never perfect backstops in the sense that there is no perfectlyclean technology that eventually solves the pollution problem once andfor all. New technologies have stings attached, i.e. each emits a specificstock pollutant. Damages are convex in individual pollution stocks butadditive across stocks, creating gains from diversification. The researchand pollution policies are tightly linked in such a setting. We derive theoptimal pollution path and R&D program. Pollution stocks overshoot andin the long run all available technologies produce. Research is sequentialand the optimal portfolio of technologies is finite....