Uncertainty and irreversible investment : an empirical analysis of development of oilfields on the UKCS
The aim of this paper is to analyse the implications of the theory of irreversible investment under uncertainty for investment in oilfields on the United Kingdom Continental Shelf (UKCS). We model the decision to proceed with the development investment as an optimal stopping problem and apply the es...
| Main Authors: | , , |
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| פורמט: | Working paper |
| שפה: | English |
| יצא לאור: |
Oxford Institute for Energy Studies
1992
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| סיכום: | The aim of this paper is to analyse the implications of the theory of irreversible investment under uncertainty for investment in oilfields on the United Kingdom Continental Shelf (UKCS). We model the decision to proceed with the development investment as an optimal stopping problem and apply the established theory to derive the determinants of the optimal policy. Data OH the length of the time period between discovery and development are available for individual oilfields on the UKCS. The theory is empirically examined by exploring the significance of the determinants of the optimal policy in explaining the variation in the development lag of individual oilfields. Applying statistical duration analysis to the North Sea data, we find a strong effect of expected price and associated price uncertainty on the length of the appraisal stage of the investment projects. |
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