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Investment and Uncertainty With Time to Build: Evidence from U.S. Copper Mining

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  • Marmer, Vadim
  • Slade, Margaret

Abstract

The standard real-options model predicts that increased uncertainty discourages investment. When projects are large and take time to build, however, this prediction can be reversed. We investigate the investment/uncertainty relationship empirically using historical data on opening dates of new U.S. copper mines - large, irreversible projects with substantial construction lags. Both the timing of the decision to go forward and the price thresholds that trigger that decision are assessed. We find that, in this market, greater uncertainty encourages investment and lowers the price thresholds for many mines.

Suggested Citation

  • Marmer, Vadim & Slade, Margaret, 2016. "Investment and Uncertainty With Time to Build: Evidence from U.S. Copper Mining," Microeconomics.ca working papers vadim_marmer-2016-14, Vancouver School of Economics, revised 22 Dec 2016.
  • Handle: RePEc:ubc:pmicro:vadim_marmer-2016-14
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    File URL: http://microeconomics.ca/vadim_marmer/TimeToBuild241116.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Investment; Uncertainty; Real options; Copper mining; Exhaustible resources;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • L72 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Other Nonrenewable Resources
    • Q39 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Other

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