Geology or Economics? Testing Models of Irreversible Investment Using North Sea Oil Data
AbstractThis paper tests the main implications of models of irreversible investment using data from operations in the oil fields in the North Sea. Discrete-time hazard regression models are used to ascertain the influence of economic variables, the expected price of oil, the variance of the price of oil and the level of reserves, on the lag between the discovery of a field and the decision to develop the field. We are able to control for heterogeneity in the data by incorporating variables which account for both the geological features of each field and individual operator characteristics. The results indicate that the expected price of oil and the level of reserves are important in influencing the appraisal duration but that the variance of the oil price is not. Variables capturing the non-economic features of the individual fields are also found to be significant factors affecting the appraisal lag. Copyright 1994 by Royal Economic Society.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Royal Economic Society in its journal The Economic Journal.
Volume (Year): 104 (1994)
Issue (Month): 423 (March)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Laarni Bulan & Christopher J. Mayer & C. Tsuriel Somerville, 2006.
"Irreversible Investment, Real Options, and Competition: Evidence from Real Estate Development,"
NBER Working Papers
12486, National Bureau of Economic Research, Inc.
- Bulan, Laarni & Mayer, Christopher & Somerville, C. Tsuriel, 2009. "Irreversible investment, real options, and competition: Evidence from real estate development," Journal of Urban Economics, Elsevier, vol. 65(3), pages 237-251, May.
- Laarni Bulan & Christopher Mayer & C. Tsuriel Somerville, . "Irreversible Investment, Real Options, and Competition: Evidence from Real Estate Development," Zell/Lurie Center Working Papers 391, Wharton School Samuel Zell and Robert Lurie Real Estate Center, University of Pennsylvania.
- Christopher F. Baum & Mustafa Caglayan & Oleksandr Talavera, 2006. "Firm Investment and Financial Frictions," Discussion Papers of DIW Berlin 634, DIW Berlin, German Institute for Economic Research.
- Mohn, Klaus & Misund, Bård, 2009. "Investment and uncertainty in the international oil and gas industry," Energy Economics, Elsevier, vol. 31(2), pages 240-248, March.
- Christopher F. Baum & Mustafa Caglayan & Oleksandr Talavera, 2010.
"On the sensitivity of firms' investment to cash flow and uncertainty,"
Oxford Economic Papers,
Oxford University Press, vol. 62(2), pages 286-306, April.
- Christopher F. Baum & Mustafa Caglayan & Oleksandr Talavera, 2006. "On the Sensitivity of Firms' Investment to Cash Flow and Uncertainty," Boston College Working Papers in Economics 638, Boston College Department of Economics, revised 26 Apr 2008.
- Alan Carruth & Andy Dickerson & Andrew Henley, 1998.
"What Do We Know About Investment Under Uncertainty?,"
Studies in Economics
9804, Department of Economics, University of Kent.
- Carruth, Alan & Dickerson, Andrew & Henley, Andrew, 2000. " What Do We Know about Investment under Uncertainty?," Journal of Economic Surveys, Wiley Blackwell, vol. 14(2), pages 119-53, April.
- Jean-Pierre Ponssard & Catherine Thomas, 2010.
"Capacity Investment under Demand Uncertainty. An Empirical Study of the US Cement Industry, 1994‐2006,"
- Jean-Pierre Ponssard & Catherine Thomas, 2010. "Capacity Investment under Demand Uncertainty. An Empirical Study of the US Cement Industry, 1994-2006," CESifo Working Paper Series 3166, CESifo Group Munich.
- Mark J. Koetse & Henri L.F. de Groot & Raymond J.G.M. Florax, 2006. "The Impact of Uncertainty on Investment: A Meta-Analysis," Tinbergen Institute Discussion Papers 06-060/3, Tinbergen Institute.
- Timothy Dunne & Xiaoyi Mu, 2008. "Investment spikes and uncertainty in the petroleum refining industry," Working Paper 0805, Federal Reserve Bank of Cleveland.
- Klaus Mohn & Petter Osmundsen, 2011.
"Asymmetry and uncertainty in capital formation: an application to oil investment,"
Taylor and Francis Journals, vol. 43(28), pages 4387-4401.
- Mohn, Klaus & Osmundsen, Petter, 2008. "Asymmetry and uncertainty in capital formation: An application to oil investment," UiS Working Papers in Economics and Finance 2009/13, University of Stavanger.
- Odening, Martin & Musshoff, Oliver & Huettel, Silke, 2003. "Empirische Validierung von Realoptionsmodellen," Working Paper Series 18825, Humboldt University Berlin, Department Agricultural Economics.
- Mohn, Klaus & Misund, Bård, 2008.
"Shifting sentiments in Firm Investment: An Application to the Oil Industry,"
UiS Working Papers in Economics and Finance
2009/12, University of Stavanger.
- Klaus Mohn & B�rd Misund, 2011. "Shifting sentiments in firm investment: an application to the oil industry," Applied Financial Economics, Taylor and Francis Journals, vol. 21(7), pages 469-479.
- Bulan, Laarni T., 2005. "Real options, irreversible investment and firm uncertainty: New evidence from U.S. firms," Review of Financial Economics, Elsevier, vol. 14(3-4), pages 255-279.
- Li, Yong & James, Barclay & Madhavan, Ravi & Mahoney, Joseph T., 2006. "Real Options: Taking Stock and Looking Ahead," Working Papers 06-0114, University of Illinois at Urbana-Champaign, College of Business.
- Muehlenbachs, Lucija, 2012. "Testing for Avoidance of Environmental Obligations," Discussion Papers dp-12-12, Resources For the Future.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.