Capacity investment under demand uncertainty: an empirical study of the US cement industry, 1994 - 2006
Uncertainty about the level of demand is thought to influence irreversible capacity decisions. This paper examines some implications of the theory literature on this topic in an empirical study of the US cement industry between 1994 and 2006. Firms in this sector have the ability to deliver cement e...
Gespeichert in:
| Beteiligte Personen: | , |
|---|---|
| Format: | Buch |
| Sprache: | Englisch |
| Veröffentlicht: |
Munich
CESifo
2010
|
| Schriftenreihe: | CESifo working papers
3166 : Category 11, Industrial organisation |
| Links: | http://www.cesifo-group.de/portal/pls/portal/docs/1/1185286.PDF |
| Zusammenfassung: | Uncertainty about the level of demand is thought to influence irreversible capacity decisions. This paper examines some implications of the theory literature on this topic in an empirical study of the US cement industry between 1994 and 2006. Firms in this sector have the ability to deliver cement either from domestic plants or from imports. Since cement is costly to transport via land, the difference in marginal cost between local production and imports varies across local markets. The marginal cost of imports is lower in areas with access to a sea port, decreasing the relative value of investing in local capacity sufficient to supply positive local demand shocks. In the presence of uncertain demand, firms may choose to serve these markets via both domestic production and imports. Consistent with the theory, we find a negative relationship between the average level of excess capacity and demand volatility only for coastal areas. An increase in demand volatility is associated with an increase in excess capacity only in landlocked areas. More generally, the paper shows that the cost of imports relative to the cost of domestic production affects the relationship between uncertainty and domestic capacity decisions. The results suggest that a unilateral climate policy in the US may induce a partial international relocation of capacity in carbon intensive industries, such as cement, by increasing the relative cost of domestic production |
| Beschreibung: | Literaturangaben. - Zusätzliches Online-Angebot unter www.SSRN.com, www.RePEc.org und www.CESifo-group.org/wp |
| Umfang: | 23, [7] S. graph. Darst. 21 cm |
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| 245 | 1 | 0 | |a Capacity investment under demand uncertainty |b an empirical study of the US cement industry, 1994 - 2006 |c Jean-Pierre Ponssard ; Catherine Thomas. Center for Economic Studies & Ifo Institute for Ecomomic Research |
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| 520 | 8 | |a Uncertainty about the level of demand is thought to influence irreversible capacity decisions. This paper examines some implications of the theory literature on this topic in an empirical study of the US cement industry between 1994 and 2006. Firms in this sector have the ability to deliver cement either from domestic plants or from imports. Since cement is costly to transport via land, the difference in marginal cost between local production and imports varies across local markets. The marginal cost of imports is lower in areas with access to a sea port, decreasing the relative value of investing in local capacity sufficient to supply positive local demand shocks. In the presence of uncertain demand, firms may choose to serve these markets via both domestic production and imports. Consistent with the theory, we find a negative relationship between the average level of excess capacity and demand volatility only for coastal areas. An increase in demand volatility is associated with an increase in excess capacity only in landlocked areas. More generally, the paper shows that the cost of imports relative to the cost of domestic production affects the relationship between uncertainty and domestic capacity decisions. The results suggest that a unilateral climate policy in the US may induce a partial international relocation of capacity in carbon intensive industries, such as cement, by increasing the relative cost of domestic production | |
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| indexdate | 2024-12-20T14:42:17Z |
| institution | BVB |
| language | English |
| oai_aleph_id | oai:aleph.bib-bvb.de:BVB01-020712018 |
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| spelling | Ponssard, Jean-Pierre Verfasser (DE-588)170045374 aut Capacity investment under demand uncertainty an empirical study of the US cement industry, 1994 - 2006 Jean-Pierre Ponssard ; Catherine Thomas. Center for Economic Studies & Ifo Institute for Ecomomic Research Munich CESifo 2010 23, [7] S. graph. Darst. 21 cm txt rdacontent n rdamedia nc rdacarrier CESifo working papers 3166 : Category 11, Industrial organisation Literaturangaben. - Zusätzliches Online-Angebot unter www.SSRN.com, www.RePEc.org und www.CESifo-group.org/wp Uncertainty about the level of demand is thought to influence irreversible capacity decisions. This paper examines some implications of the theory literature on this topic in an empirical study of the US cement industry between 1994 and 2006. Firms in this sector have the ability to deliver cement either from domestic plants or from imports. Since cement is costly to transport via land, the difference in marginal cost between local production and imports varies across local markets. The marginal cost of imports is lower in areas with access to a sea port, decreasing the relative value of investing in local capacity sufficient to supply positive local demand shocks. In the presence of uncertain demand, firms may choose to serve these markets via both domestic production and imports. Consistent with the theory, we find a negative relationship between the average level of excess capacity and demand volatility only for coastal areas. An increase in demand volatility is associated with an increase in excess capacity only in landlocked areas. More generally, the paper shows that the cost of imports relative to the cost of domestic production affects the relationship between uncertainty and domestic capacity decisions. The results suggest that a unilateral climate policy in the US may induce a partial international relocation of capacity in carbon intensive industries, such as cement, by increasing the relative cost of domestic production Thomas, Catherine Verfasser aut CESifo working papers 3166 : Category 11, Industrial organisation (DE-604)BV013978326 3166 http://www.cesifo-group.de/portal/pls/portal/docs/1/1185286.PDF Verlag kostenfrei Volltext |
| spellingShingle | Ponssard, Jean-Pierre Thomas, Catherine Capacity investment under demand uncertainty an empirical study of the US cement industry, 1994 - 2006 CESifo working papers |
| title | Capacity investment under demand uncertainty an empirical study of the US cement industry, 1994 - 2006 |
| title_auth | Capacity investment under demand uncertainty an empirical study of the US cement industry, 1994 - 2006 |
| title_exact_search | Capacity investment under demand uncertainty an empirical study of the US cement industry, 1994 - 2006 |
| title_full | Capacity investment under demand uncertainty an empirical study of the US cement industry, 1994 - 2006 Jean-Pierre Ponssard ; Catherine Thomas. Center for Economic Studies & Ifo Institute for Ecomomic Research |
| title_fullStr | Capacity investment under demand uncertainty an empirical study of the US cement industry, 1994 - 2006 Jean-Pierre Ponssard ; Catherine Thomas. Center for Economic Studies & Ifo Institute for Ecomomic Research |
| title_full_unstemmed | Capacity investment under demand uncertainty an empirical study of the US cement industry, 1994 - 2006 Jean-Pierre Ponssard ; Catherine Thomas. Center for Economic Studies & Ifo Institute for Ecomomic Research |
| title_short | Capacity investment under demand uncertainty |
| title_sort | capacity investment under demand uncertainty an empirical study of the us cement industry 1994 2006 |
| title_sub | an empirical study of the US cement industry, 1994 - 2006 |
| url | http://www.cesifo-group.de/portal/pls/portal/docs/1/1185286.PDF |
| volume_link | (DE-604)BV013978326 |
| work_keys_str_mv | AT ponssardjeanpierre capacityinvestmentunderdemanduncertaintyanempiricalstudyoftheuscementindustry19942006 AT thomascatherine capacityinvestmentunderdemanduncertaintyanempiricalstudyoftheuscementindustry19942006 |