Policy Uncertainty and Technology Adoption

This paper considers technology adoption under both technological and subsidy uncertainties. Uncertainty in subsidies for green technologies is considered as an example. Technological progress is exogenous and modeled as a jump process with a drift. The analytical solution is presented for cases when there is no subsidy uncertainty and when the subsidy changes once. The case when the subsidy follows a time invariant Markov process is analyzed numerically. The results show that improving the innovation process raises the investment thresholds. When technological jumps are small or rare, this improvement reduces the expected time before technology adoption. However, when technological jumps are large or abundant, this improvement may raise this expected time.