Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
11023368 | Journal of Economic Dynamics and Control | 2018 | 65 Pages |
Abstract
The standard real-options model predicts that increased uncertainty discourages investment. When projects are large and take time to build, however, that prediction can be reversed. We investigate the investment/uncertainty relationship empirically using historical data on opening dates of new U.S. copper mines - large, irreversible projects with substantial construction lags. Both the timing of the decision to go forward and the price thresholds that trigger that decision are assessed. In particular, we build upon a reduced form analysis to construct a structural model of entry. We find that, in this market, greater uncertainty encourages investment and lowers the price thresholds for many mines.
Related Topics
Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
Vadim Marmer, Margaret E. Slade,