Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/74406
Authors: 
Paulus, Moritz
Year of Publication: 
2012
Series/Report no.: 
EWI Working Paper 12/03
Abstract: 
During the last decade, China has evolved into the largest consumer by far and one of the largest importers of coal. The main driver for the increase in coal demand in China has been economic growth. Future Chinese growth rates, and therefore coal consumption and coal imports, are highly uncertain, which may affect proffitability of new investments of international mining companies. Furthermore, China has actively employed an array of instruments to control coal trade flows in the last years. In this paper, we analyse the potential impact of increased Chinese coal import volatility and of potential exertion of Chinese market power on global mining investment decisions. For this purpose, we develop a multi-stage stochastic equilibrium model which is able to simulate investments under uncertainty and a monopolistic player in addition to a competitive fringe. We find that accounting for Chinese demand uncertainty yields significant costs for investors and also leads to a delay in investments. Additionally, the exertion of Chinese market power further reduces overall investment activity.
Subjects: 
Investments under uncertainty
value of perfect information
risk aversion
strategic behaviour
JEL: 
C61
F10
L13
L71
Document Type: 
Working Paper

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