Oil Exploration and Technical Progress in Backstop Technology

Abstract: This paper examines the impact of endogenous technological change in backstop technology on the optimal exploration and extraction of an ex-haustible resource. An intertemporal optimization model is developed and simulated using data for global oil and renewable energy supply and demand. The results indicate that the presence of renewable energy and research in this ¯eld alter the optimal time path of oil exploration. Less resources are developed in favor of alternative energy production. However, as long as oil is extracted the share of renewable energy in total production remains rela-tively small, while the utilization of the resource is shifted from the future towards the present. Key Words: exhaustible resources; oil exploration; backstop technology; tech-nological change