Economic and financial incentives have become accepted tools for the implementation of government policies, such as encouraging the widespread use of new technologies that offer significant economic and political benefits at the macroeconomic level but are not well perceived by managers at the micro level due to significant retrofitting costs, This study, using portfolio and real investment theories, develops a quantitative methodology for selecting the optimal mix of incentives based on financial and operating factor sensitivities of the targeted firms in an uncertain environment, The proposed methodology overcomes several shortcomings of previous studies, The study applies the suggested method to a recent DOD/DOE (1995)/g project data that estimates the net benefits of a new coal-based technology. The results show that government policies based on a combination of incentives are more effective than individual incentive-based policies, The empirical analysis of firms, which account for the 163 boiler sites in the sample, reveals that the optimal incentive package is weighted about 2:1 in favor of tax incentives versus research and development subsidies.