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MANAGING ADVANCED TECHNOLOGY SYSTEM DEPLOYMENT: AN OPTIMAL ALLOCATION BETWEEN R&D AND PROTOTYPE FUNDING

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The research and development manager allocates R&D funds to maximize the expected discounted net value of the R&D programme. Because public R&D managers do not have the same market discipline (or rewards) as private R&D managers, public R&D managers require a methodology for maximizing the expected net benefits. The US National Research Council of the National Academies in Prospective Evaluation of Applied Energy Research and Development at DOE (Phase One): A First Look Forward (2005) proposed a cost-benefit methodology to evaluate US Department of Energy's Research, Development, and Demonstration (RD&D) programmes. This paper specifies and extends this methodology, e.g., by adding cost targets into each stage of the RD&D process. Expected benefits are modelled as a function of funding levels, stage durations, stage transition probabilities, and target costs. With this method, the paper determines an optimal allocation of pre-prototype R&D funding, given a total funding constraint for an advanced energy system.
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Keywords: Advanced energy systems; Decision analysis; Energy policy; Innovation; R&D management; RD&D; RDD&D; Research and development; Technology development

Document Type: Research Article

Affiliations: Department of Economics, Stanford University, Stanford, CA, USA

Publication date: 01 September 2007

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