When to drill? Trigger prices for the Arctic National Wildlife Refuge

The social net benefit of drilling for oil in the Arctic National Wildlife Refuge (ANWR) has been a contentious policy issue since 1998. This paper applies real option theory to the issue and asks “What price for crude oil would justify the investment in field development and the loss of an amenity (wilderness) dividend?” Trigger prices are identified for two stochastic processes; when crude oil prices evolve according to geometric Brownian motion (GBM) and when crude oil prices are mean-reverting (M-R).