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How rational are investment decisions in the copper industry?


  • Auger, Felipe
  • Ignacio Guzmán, Juan


This paper examines ex-post 51 investment decisions made in regard to copper mines coming on stream from 1957 through 1999. It discusses two critical variables: investment timing and mine capacity choice. Using a 15% discount rate, results suggest that fewer than half of decisions were made at the right time - i.e., low price periods - confirming countercyclical investment as the optimal policy. In terms of capacity choice, the distortion is even higher, as 36 projects should have entered at least 40% larger or smaller. Realized investment decisions for timing and capacity choice would have caused a 49.1% loss over the NPV potentially achievable under optimal resolutions. Although the difference could be specifically attributed to copper price uncertainty, this paper discusses how investment evaluation methodologies could be contributing to firms not being fully rational (in the neoclassical sense) when investing.

Suggested Citation

  • Auger, Felipe & Ignacio Guzmán, Juan, 2010. "How rational are investment decisions in the copper industry?," Resources Policy, Elsevier, vol. 35(4), pages 292-300, December.
  • Handle: RePEc:eee:jrpoli:v:35:y:2010:i:4:p:292-300

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    References listed on IDEAS

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    7. Pindyck, Robert S, 1991. "Irreversibility, Uncertainty, and Investment," Journal of Economic Literature, American Economic Association, vol. 29(3), pages 1110-1148, September.
    8. Felipe L. Aguerrevere, 2003. "Equilibrium Investment Strategies and Output Price Behavior: A Real-Options Approach," Review of Financial Studies, Society for Financial Studies, vol. 16(4), pages 1239-1272.
    9. Pindyck, Robert S, 1988. "Irreversible Investment, Capacity Choice, and the Value of the Firm," American Economic Review, American Economic Association, vol. 78(5), pages 969-985, December.
    10. Roberts, Mark C., 2009. "Duration and characteristics of metal price cycles," Resources Policy, Elsevier, vol. 34(3), pages 87-102, September.
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    Cited by:

    1. repec:eee:jrpoli:v:53:y:2017:i:c:p:66-76 is not listed on IDEAS
    2. Savolainen, Jyrki, 2016. "Real options in metal mining project valuation: Review of literature," Resources Policy, Elsevier, vol. 50(C), pages 49-65.
    3. Suárez Sánchez, Ana & Krzemień, Alicja & Riesgo Fernández, Pedro & Iglesias Rodríguez, Francisco J. & Sánchez Lasheras, Fernando & de Cos Juez, F. Javier, 2015. "Investment in new tungsten mining projects," Resources Policy, Elsevier, vol. 46(P2), pages 177-190.


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