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

  • Neumann, A.
  • von Hirschhausen, C.

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 Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0630.

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Length: 16
Date of creation: Feb 2006
Date of revision:
Handle: RePEc:cam:camdae:0630
Note: IO
Contact details of provider: Web page: http://www.econ.cam.ac.uk/index.htm

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  1. Neumann, Anne & Siliverstovs, Boriss, 2005. "Convergence of European Spot Market Prices for Natural Gas? A Real-Time Analysis of Market Integration using the Kalman Filter," Dresden Discussion Paper Series in Economics 05/05, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.
  2. Mulherin, J Harold, 1986. "Complexity in Long-term Contracts: An Analysis of Natural Gas Contractual Provisions," Journal of Law, Economics and Organization, Oxford University Press, vol. 2(1), pages 105-17, Spring.
  3. 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.
  4. Joskow, Paul L, 1985. "Vertical Integration and Long-term Contracts: The Case of Coal-burning Electric Generating Plants," Journal of Law, Economics and Organization, Oxford University Press, vol. 1(1), pages 33-80, Spring.
  5. 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.
  6. 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.
  7. 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.
  8. 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.
  9. Harry W. Richardson & Peter Gordon & James E. Moore II, 2005. "Introduction," Chapters, in: The Economic Impacts of Terrorist Attacks, chapter 1 Edward Elgar.
  10. 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.
  11. 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.
  12. 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.
  13. Oliver Hart & John Moore, 1985. "Incomplete Contracts and Renegotiation," Working papers 367, Massachusetts Institute of Technology (MIT), Department of Economics.
  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. 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.
  16. 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.
  17. Williamson, Oliver E, 1983. "Credible Commitments: Using Hostages to Support Exchange," American Economic Review, American Economic Association, vol. 73(4), pages 519-40, September.
  18. Masten, Scott E, 1988. "Minimum Bill Contracts: Theory and Policy," Journal of Industrial Economics, Wiley Blackwell, vol. 37(1), pages 85-97, September.
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