Klaus Mohn

Asymmetry and uncertainty in capital formation: an application to oil investment

Theories of irreversible investment suggest a negative relation between investment and uncertainty, and nonlinear adjustment costs open for asymmetries in the adjustment of fixed capital. We propose an econometric modelling approach to estimate and test the key predictions of modern investment theory, including asymmetric dynamics and various uncertainty indicators. Our application on a data set from the oil industry offers empirical support for both asymmetric dynamics and uncertainty in oil and gas investment.

Shifting sentiments in firm investment: an application to the oil industry

Recent developments in the oil and gas industry suggest that investment behaviour is not necessarily changeless over time. We propose a micro-econometric procedure to investigate the stability of investment behaviour at the firm level. Applying system Generalized Method of Moments (GMM) on a panel data set for 253 oil and gas companies over 14 years, we estimate accelerator models of investment with error-correction. Robust econometric evidence indicates a structural break in oil and gas investment in 1998. The process of capital formation over the last few years is more flexible than before, with significant and material changes in the role of explanatory factors like cash flow and uncertainty.

Elastic Oil. A primer on the economics of exploration and production

Predictions from the original geophysical approach to oil exploration and production suggest that oil production will develop according to a predetermined and inflexible bell-shaped trajectory, quite independent of variables relating to technological development, economics, and policy. Exploring the potential sources of elasticity in oil reserves and production, this paper offers a modification to the geophysical approach. Based on economic theory and modern empirical research the results suggest that both reserve-generation and production are indeed influenced by factors and forces of technology, economics, and government regulation.

Autism in Economics? A Second Opinion

A popular claim among critics is that economic science is suffering from autism, a severe developmental disorder characterised by impairments in social relations and communication, combined with rigid and repetitive behaviour. So far, this allegation has not been substantiated. This essay explores the claim of autism in economics based on modern schemes of diagnostics. A key finding is that the structure of the critique against mainstream economics bears a striking resemblance to the structure of the diagnostic criteria for autism. Based on an examination of three groups of key symptoms, I conclude that the required set of criteria for the autism diagnosis are not met. However, there are parallels which may serve as constructive reminders for the future development and application of economic theories and models.

Exploration risk in international oil and gas shareholder returns

This paper focuses upon the oil and gas industry, examining the association between exploration activity risk and company shareholder returns. Using monthly returns data from 189 oil and gas companies between 1993 and 2013, we supplement the Fama – French approach with an industry-specific fundamental factor in order to capture company exposure to oil and gas exploration risk. Our results indicate that exploration risk contributes significantly to oil company excess returns throughout the period of our study. Moreover, we are unable to uncover asymmetric effects related to positive/negative oil price changes. The effects of the interaction between the variables of exploration and oil price are equally difficult to uncover.