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Investment and uncertainty in the international oil and gas industry

  • Mohn, Klaus
  • Misund, Bård

The standard theory of irreversible investments and real options suggests a negative relation between investment and uncertainty. Richer models with compound option structures open for a positive relationship. This paper presents a micro-econometric study of corporate investment and uncertainty in a period of market turbulence and restructuring in the international oil and gas industry. Based on data for 115 companies over the period 1992-2005, we estimate four different specifications of the q model of investment, with robust results for the uncertainty variables. The estimated models suggest that macroeconomic uncertainty creates a bottleneck for oil and gas investment and production, whereas industry-specific uncertainty has a stimulating effect.

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Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 31 (2009)
Issue (Month): 2 (March)
Pages: 240-248

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Handle: RePEc:eee:eneeco:v:31:y:2009:i:2:p:240-248
Contact details of provider: Web page: http://www.elsevier.com/locate/eneco

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