R&D policies for desalination technologies

In many arid and semi-arid regions whether or not to desalinate seawater ha s long been a non-issue and policy debates are focused on the timing and ex tent of the desalination activities. We analyze how water scarcity and dema nd structure, on the one hand, and cost reduction via R&D programs, on the other hand, affect the desirable development of desalination technologies a nd the time profiles of fresh and desalinated water supplies. We show that the optimal R&D policy is of a non-standard most rapid approach path (NSMRA P) type, under which the state of desalination technology - the accumulated learning from R&D efforts - should approach a pre-specified tai get proces s as rapidly as possible and proceed along it thereafter. The NSMRAP proper ty enables a complete characterization of the optimal water policy. The ren ewable nature of the fresh water stock permits a non-monotonic behavior of the optimal stock process: under certain conditions, the stock is depleted, to be (fully or partly) refilled at a later date. (C) 2000 Elsevier Scienc e B.V. All rights reserved. JEL classification: Q16: Q25.