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The present study examines the problem facing a resource-importing economy seeking to achieve energy independence by developing a renewable substitute. The invention of the substitute is assumed to follow a stochastic process that can be influenced by investment in energy research and development. I analyze the optimal investment strategy under alternative assumptions with respect to the economy's access to international financial markets, the terms on which credit is available, and the country's degree of dependence on resource imports. It is found that, in general, having access to capital markets does not necessarily lead to a higher investment rate. However, in the empirically relevant range of elasticity of intertemporal consumption substitution, the economy with access to credit invests more than under financial autarky. A higher degree of dependence on resource imports implies a lower optimal investment. Arrival of the substitute does not necessarily cause an immediate improvement in the net foreign asset position but may in fact cause its further deterioration. [ABSTRACT FROM AUTHOR]

Countries with strict immigration policies often resort to deportation measures to reduce their stocks of illegal immigrants. Many of their undocumented foreign workers, however, are not deported but rather choose to return home voluntarily. This paper studies the optimizing behavior of undocumented immigrants who continuously face the risk of deportation, modeled by a stochastic process, and must decide how long to remain in the host country. It is found that the presence of uncertainty with respect to the length of stay abroad unambiguously reduces the desired migration duration and may trigger a voluntary return when a permanent stay would otherwise be optimal. Voluntary return is motivated by both economic and psychological factors. Calibration of the model to match the evidence on undocumented Thai migrants in Japan suggests that the psychological impact of being abroad as an illegal alien may be equivalent to as large as a 68 % cut in the consumption rate at the point of return. [ABSTRACT FROM AUTHOR]