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Asymmetry and uncertainty in capital formation: an application to oil investment

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  • Klaus Mohn
  • Petter Osmundsen

Abstract

Theories of irreversible investment suggest a negative relation between investment and uncertainty, and nonlinear adjustment costs open for asymmetries in the adjustment of fixed capital. We propose an econometric modelling approach to estimate and test the key predictions of modern investment theory, including asymmetric dynamics and various uncertainty indicators. Our application on a data set from the oil industry offers empirical support for both asymmetric dynamics and uncertainty in oil and gas investment.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/00036846.2010.491460
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 43 (2011)
Issue (Month): 28 ()
Pages: 4387-4401

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Handle: RePEc:taf:applec:v:43:y:2011:i:28:p:4387-4401

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