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Investment and uncertainty with time to build: Evidence from entry into U.S. copper mining

Vadim Marmer () and Margaret Slade ()

Journal of Economic Dynamics and Control, 2018, vol. 95, issue C, 233-254

Abstract: The standard real-options model predicts that increased uncertainty discourages investment. When projects are large and take time to build, however, that 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. In particular, we build upon a reduced form analysis to construct a structural model of entry. We find that, in this market, greater uncertainty encourages investment and lowers the price thresholds for many mines.

Keywords: Investment; Entry; Uncertainty; Real options; Copper mining; Structural estimation (search for similar items in EconPapers)
JEL-codes: G11 L72 Q39 (search for similar items in EconPapers)
Date: 2018
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Working Paper: Investment and Uncertainty With Time to Build: Evidence from U.S. Copper Mining (2016) Downloads
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Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

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Handle: RePEc:eee:dyncon:v:95:y:2018:i:c:p:233-254