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

69 Pages Posted: 28 Dec 2016

See all articles by Vadim Marmer

Vadim Marmer

University of British Columbia (UBC) - Vancouver School of Economics

Margaret E. Slade

University of Warwick - Department of Economics

Date Written: December 27, 2016

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.

Keywords: Investment, Uncertainty, Real options, Copper mining, Exhaustible resources

JEL Classification: G11, L72, Q39

Suggested Citation

Marmer, Vadim and Slade, Margaret E., Investment and Uncertainty with Time to Build: Evidence from U.S. Copper Mining (December 27, 2016). Available at SSRN: https://ssrn.com/abstract=2890607 or http://dx.doi.org/10.2139/ssrn.2890607

Vadim Marmer

University of British Columbia (UBC) - Vancouver School of Economics ( email )

6000 Iona Dr
Vancouver, BC V6T 1L4
Canada

Margaret E. Slade (Contact Author)

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom

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