IDEAS home Printed from https://ideas.repec.org/p/diw/diwwpp/dp552.html
   My bibliography  Save this paper

Long-Term Contracts and Asset Specificity Revisited: An Empirical Analysis of Producer-Importer Relations in the Natural Gas Industry

Author

Listed:
  • Anne Neumann
  • Christian von Hirschhausen

Abstract

In this paper, we analyze structural changes in long-term contracts in the international trade of natural gas. Using a unique data set of 262 long-term contracts between natural gas producers and importers, we estimate the impact of different institutional, structural and technical variables on the duration of contracts. We find that contract duration decreases as the market structure of the industry develops to more competitive regimes. Our main finding is that contracts that are linked to an asset specific investment are on average four years longer than those who are not.

Suggested Citation

  • Anne Neumann & Christian von Hirschhausen, 2006. "Long-Term Contracts and Asset Specificity Revisited: An Empirical Analysis of Producer-Importer Relations in the Natural Gas Industry," Discussion Papers of DIW Berlin 552, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp552
    as

    Download full text from publisher

    File URL: https://www.diw.de/documents/publikationen/73/diw_01.c.44015.de/dp552.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Huw Dixon & Joshy Easaw, 2001. "Strategic Responses to Regulatory Policies: What Lessons Can Be Learned from the U.K. Contract Gas Market?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 18(4), pages 379-396, June.
    2. Hart, Oliver D & Moore, John, 1988. "Incomplete Contracts and Renegotiation," Econometrica, Econometric Society, vol. 56(4), pages 755-785, July.
    3. Brousseau,Eric & Glachant,Jean-Michel (ed.), 2002. "The Economics of Contracts," Cambridge Books, Cambridge University Press, number 9780521893138.
    4. Rachael E. Goodhue & Dale M. Heien & Hyunok Lee & Daniel A. Sumner, 2003. "Contracts and Quality in the California Winegrape Industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 23(3_4), pages 267-282, December.
    5. Hubbard, R Glenn & Weiner, Robert J, 1986. "Regulation and Long-term Contracting in U.S. Natural Gas Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 35(1), pages 71-79, September.
    6. Joskow, Paul L, 1985. "Vertical Integration and Long-term Contracts: The Case of Coal-burning Electric Generating Plants," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 1(1), pages 33-80, Spring.
    7. Joskow, Paul L, 1988. "Asset Specificity and the Structure of Vertical Relationships: Empirical Evidence," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 4(1), pages 95-117, Spring.
    8. Mulherin, J Harold, 1986. "Complexity in Long-term Contracts: An Analysis of Natural Gas Contractual Provisions," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 2(1), pages 105-117, Spring.
    9. Masten, Scott E, 1988. "Minimum Bill Contracts: Theory and Policy," Journal of Industrial Economics, Wiley Blackwell, vol. 37(1), pages 85-97, September.
    10. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
    11. Claude Ménard (ed.), 2000. "Institutions, Contracts and Organizations," Books, Edward Elgar Publishing, number 1921.
    12. Brousseau,Eric & Glachant,Jean-Michel (ed.), 2002. "The Economics of Contracts," Cambridge Books, Cambridge University Press, number 9780521814904.
    13. Anne Neumann & Boriss Siliverstovs & Christian von Hirschhausen, 2006. "Convergence of European spot market prices for natural gas? A real-time analysis of market integration using the Kalman Filter," Applied Economics Letters, Taylor & Francis Journals, vol. 13(11), pages 727-732.
    14. Dagobert L. Brito & Peter R. Hartley, 2007. "Expectations and the Evolving World Gas Market," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 1-24.
    15. Scott E. Masten & Stéphane Saussier, 2000. "Econometrics of Contracts : an Assessment of Developments in the Empirical Literature on Contracting," Revue d'Économie Industrielle, Programme National Persée, vol. 92(1), pages 215-236.
    16. Williamson, Oliver E, 1983. "Credible Commitments: Using Hostages to Support Exchange," American Economic Review, American Economic Association, vol. 73(4), pages 519-540, September.
    17. Doane, Michael J & Spulber, Daniel F, 1994. "Open Access and the Evolution of the U.S. Spot Market for Natural Gas," Journal of Law and Economics, University of Chicago Press, vol. 37(2), pages 477-517, October.
    18. Masten, Scott E & Crocker, Keith J, 1985. "Efficient Adaptation in Long-term Contracts: Take-or-Pay Provisions for Natural Gas," American Economic Review, American Economic Association, vol. 75(5), pages 1083-1093, December.
    19. Paul Joskow, 2005. "Regulation and Deregulation after 25 Years: Lessons Learned for Research in Industrial Organization," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 26(2), pages 169-193, December.
    20. Leon Oerlemans & Marius Meeus, 2001. "R&D Cooperation in a Transaction Cost Perspective," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 18(1), pages 77-90, February.
    21. Keith J. Crocker & Scott E. Masten, 1988. "Mitigating Contractual Hazards: Unilateral Options and Contract Length," RAND Journal of Economics, The RAND Corporation, vol. 19(3), pages 327-343, Autumn.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chi Kong Chyong, 2019. "European Natural Gas Markets: Taking Stock and Looking Forward," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 55(1), pages 89-109, August.
    2. Glachant, Jean-Michel & Hallack, Michelle, 2009. "Take-or-pay contract robustness: A three step story told by the Brazil-Bolivia gas case?," Energy Policy, Elsevier, vol. 37(2), pages 651-657, February.
    3. Chyong, C-K., 2019. "Challenges to the Future of European Single Market in Natural Gas," Cambridge Working Papers in Economics 1918, Faculty of Economics, University of Cambridge.
    4. Chi-Kong Chyong, 2015. "Markets and long-term contracts: The case of Russian gas supplies to Europe," Cambridge Working Papers in Economics 1542, Faculty of Economics, University of Cambridge.
    5. Anne Neumann & Sophia Rüster & Christian von Hirschhausen, 2015. "Long-Term Contracts in the Natural Gas Industry: Literature Survey and Data on 426 Contracts (1965-2014)," Data Documentation 77, DIW Berlin, German Institute for Economic Research.
    6. Anjana Susarla & Ramanath Subramanyam & Prasanna Karhade, 2010. "Contractual Provisions to Mitigate Holdup: Evidence from Information Technology Outsourcing," Information Systems Research, INFORMS, vol. 21(1), pages 37-55, March.
    7. Stéphane Saussier, 1998. "La durée des contrats interentreprises : une analyse empirique," Économie et Prévision, Programme National Persée, vol. 135(4), pages 137-146.
    8. Joseph C. Mullin & Wallace P. Mullin, 1996. "United States Steel's Acquisition of the Great Northern Ore Properties: Vertical Foreclosure or Efficient Contractual Governance?," NBER Working Papers 5662, National Bureau of Economic Research, Inc.
    9. López-Bayón, Susana & González-Díaz, Manuel, 2010. "Indefinite contract duration: Evidence from electronics subcontracting," International Review of Law and Economics, Elsevier, vol. 30(2), pages 145-159, June.
    10. Marco Furlotti, 2007. "There is more to contracts than incompleteness: a review and assessment of empirical research on inter-firm contract design," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 11(1), pages 61-99, March.
    11. Kosnik, Lea & Lange, Ian, 2011. "Contract renegotiation and rent re-distribution: Who gets raked over the coals?," Journal of Environmental Economics and Management, Elsevier, vol. 62(2), pages 155-165, September.
    12. Hauteclocque, Adrien de & Glachant, Jean-Michel, 2009. "Long-term energy supply contracts in European competition policy: Fuzzy not crazy," Energy Policy, Elsevier, vol. 37(12), pages 5399-5407, December.
    13. Costello, Anna M., 2013. "Mitigating incentive conflicts in inter-firm relationships: Evidence from long-term supply contracts," Journal of Accounting and Economics, Elsevier, vol. 56(1), pages 19-39.
    14. repec:dau:papers:123456789/5372 is not listed on IDEAS
    15. Sharon Novak & Scott Stern, 2009. "Complementarity Among Vertical Integration Decisions: Evidence from Automobile Product Development," Management Science, INFORMS, vol. 55(2), pages 311-332, February.
    16. Fan, Joseph P. H., 2000. "Price uncertainty and vertical integration: an examination of petrochemical firms," Journal of Corporate Finance, Elsevier, vol. 6(4), pages 345-376, December.
    17. Bernard Baudry & Virgile Chassagnon, 2012. "The vertical network organization as a specific governance structure: what are the challenges for incomplete contracts theories and what are the theoretical implications for the boundaries of the (hub," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 16(2), pages 285-303, May.
    18. Kyle J. Mayer & Nicholas S. Argyres, 2004. "Learning to Contract: Evidence from the Personal Computer Industry," Organization Science, INFORMS, vol. 15(4), pages 394-410, August.
    19. Robert Gibbons, 2010. "Transaction‐Cost Economics: Past, Present, and Future?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 112(2), pages 263-288, June.
    20. M'Hand Farès & Stéphane Saussier, 2002. "Coûts de transaction et contrats incomplets," Revue Française d'Économie, Programme National Persée, vol. 16(3), pages 193-230.
    21. Francine Lafontaine & Margaret E. Slade, 1998. "Incentive Contracting and the Franchise Decision," NBER Working Papers 6544, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    asset specificity; econometric analysis; long-term contracts; natural gas;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:diw:diwwpp:dp552. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Bibliothek (email available below). General contact details of provider: https://edirc.repec.org/data/diwbede.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.