Depletion of natural resources, technological uncertainty, and the adoption of technological substitutes

Given an existing but unadopted backstop technology, this paper investigates the impact of uncertainty in the discovery date of superior backstop technologies on the rate of exhaustible resource depletion and adoption timing. Contrary to studies with a single backstop technology, the elevated rate of resource price increase due to uncertainty persists beyond discovery of a backstop technology. The option value of waiting can justify putting off, possibly indefinitely, what would otherwise be a sound investment in current backstop technology. In other circumstances the resource is depleted more rapidly and adoption occurs sooner than if future discoveries were not anticipated.