Energy generation with directed technical change

To analyze the direction of technical change with respect to energy generation, we use a growth model with two cost reducing technologies, one associated with an exhaustible resource and one with a backstop. We show that research in the exhaustible resource sector is not optimal in the long run. Furthermore, it can be only conducted in the short run, if the economy is suffciently rich. Otherwise, the temporally limited effect of R&D in the resource sector is outweighed by the unlimited effect of R&D in the backstop sector or of capital accumulation. If the exhaustible resource causes pollution, the resource is partly substituted by the backstop. Therefore, the attractiveness of research in the resource sector is reduced while research in the backstop sector gets more attractive. We not only describe the direction of technical change but the complete economic development. With two nonexhaustible energy sources, R&D is conducted in both sectors in the long run. Thus, the limited resource stock alters the direction of technical change fundamentally.