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

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Author Info
Anne Neumann
Christian von Hirschhausen

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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.

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Paper provided by Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research in its series Working Papers with number 0610.

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Date of creation: May 2006
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Handle: RePEc:mee:wpaper:0610

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  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, vol. 18(4), pages 379-396, June. [Downloadable!] (restricted)
  2. Rachael Goodhue & Dale Heien & Hyunok Lee & Daniel Sumner, 2003. "Contracts and Quality in the California Winegrape Industry," Review of Industrial Organization, Springer, vol. 23(3), pages 267-282, December. [Downloadable!] (restricted)
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  3. Williamson, Oliver E, 1983. "Credible Commitments: Using Hostages to Support Exchange," American Economic Review, American Economic Association, vol. 73(4), pages 519-40, September. [Downloadable!] (restricted)
  4. Doane, Michael J & Spulber, Daniel F, 1994. "Open Access and the Evolution of the U.S. Spot Market for Natural Gas," Journal of Law & Economics, University of Chicago Press, vol. 37(2), pages 477-517, October.
  5. Hart, Oliver D & Moore, John, 1988. "Incomplete Contracts and Renegotiation," Econometrica, Econometric Society, vol. 56(4), pages 755-85, July. [Downloadable!] (restricted)
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  6. Paul Joskow, 1984. "Vertical Integration and Long Term Contracts: The Case of Coal Burning Electric Generating Plants," Working papers 361, Massachusetts Institute of Technology (MIT), Department of Economics.
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  7. Joskow, Paul L, 1988. "Asset Specificity and the Structure of Vertical Relationships: Empirical Evidence," Journal of Law, Economics and Organization, Oxford University Press, vol. 4(1), pages 95-117, Spring.
  8. Masten, Scott E, 1988. "Minimum Bill Contracts: Theory and Policy," Journal of Industrial Economics, Blackwell Publishing, vol. 37(1), pages 85-97, September. [Downloadable!] (restricted)
  9. 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 1083-93, December. [Downloadable!] (restricted)
  10. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law & Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
  11. Paul Joskow, 2005. "Regulation and Deregulation after 25 Years: Lessons Learned for Research in Industrial Organization," Review of Industrial Organization, Springer, vol. 26(2), pages 169-193, December. [Downloadable!] (restricted)
  12. 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 and Francis Journals, vol. 13(11), pages 727-732, September. [Downloadable!] (restricted)
  13. Leon Oerlemans & Marius Meeus, 2001. "R&D Cooperation in a Transaction Cost Perspective," Review of Industrial Organization, Springer, vol. 18(1), pages 77-90, February. [Downloadable!] (restricted)
  14. 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. [Downloadable!] (restricted)
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