AbstractExploration and production (E&P) companies must replace oil produced with new proved reserves in order to sustain their existence, generate future revenues and value. Extensions constitute the largest type of additions to new proved reserves. Adding reserves through extensions is capital intensive and both the real price of oil (represented by real refiner acquisition cost) and real interest (represented by real yield on 10 year Treasury bond) will influence the investment in new discoveries of proved reserves. However, recent periods of unusually high commodity prices and ultra-low interest rates, often linked to monetary policy, may have led to an over-investment in reserves through extensions. Accordingly, using U.S. data (1977–2014) we test for the existence of “explosive behavior” in the volume of extensions over time with financial time series econometric methods referred to as right-tail ADF tests which have traditionally been used for identifying speculative bubbles in asset markets. Empirical evidence identifies a period of explosive (“bubble-like”) behavior in the time series of extensions having occurred beginning 2010 through 2014. This research provides an Austrian explanation for the empirical results consistent with the notion of malinvestment.

Classical economists believed that economic value, which is the basis for all discussions pertaining to markets and prices, was determined by the costs of the factors needed to produce the good in question. Economic expansion would require capitalists to pay higher wages to workers because of diminishing productivity in agricultural production, and, as wages rose, capitalist profits would necessarily fall. According to Ricardo, over time this process would lead society to an undesirable stationary state. John Stuart Mill’s extension of the classical labor theory of value provides for a theory of distribution that is separate from the fixed laws of production. Once the theories of production and distribution became disentangled, economists were able to envision ways to influence distributional outcomes that could alleviate the suffering of the majority of the population. We explore the classical labor theory of value and the implications it produces for a theory of distribution. In particular, we discuss Mill’s unique contribution to classical value theory and argue that Mill, through his economic argument in favor of organized labor, actually foresaw the modern literature on uncertainty and information. We illustrate this contribution by way of an example that captures the distributional gains that workers enjoy from repeated negotiations between unions and employers.

The Classical School of economics is generally credited with providing the ideological foundation for the study of labor unions in the United States. In particular, one passage from Adam Smith's Wealth of Nations is believed to be the catalyst for the systematic study of organized labor. Smith and other classical economists wrote extensively of “labor's disadvantage” with capital, which allowed for unfair negotiations between workers and management. In this paper, we suggest that, although Adam Smith was the first economist to identify the problems that labor has in its dealings with management, he did not offer a truly theoretical explanation for these difficulties. The economist who first studied the labor/capital nexus from an economic perspective was John Stuart Mill. Mill's pioneering treatment of labor and capital provided an economic justification for the existence of labor unions.

In this paper, we investigate the rebuild or repair decision that property owners face after damages caused by catastrophic hurricanes such as Katrina in New Orleans. In particular, we consider how the degree of risk aversion and uncertainty affect the decision-making process. A theoretical model is developed using the real-options framework of Dixit and Pindyck (1994). According to the model, the decision to rebuild a property is reached much later when there is a high degree of uncertainty over future social costs and a high discount rate. We demonstrate these effects using simulations with actual numbers from Hurricane Katrina.

The damage generated by Hurricane Katrina caused significant private as well as social costs. The water and force from the hurricane and subsequent flooding caused immediate property damage, but also potential environmental contamination over time. The decision on the part of property owners affected by Katrina to deal with damaged property must take into account both the private and social costs. This paper explores this decision making process using a real-options model. In particular, we focus on the element of time preference in this decision. We analyze the impact that changes in monetary policy, and ultimately the discount rate, have on the decision to repair or rebuild a property damaged by flooding. According to the theory, rising interest rates would suggest a greater propensity to defer the option to rebuild damaged properties, whereas falling interest rates cause property owners to reach the decision to rebuild properties relatively more quickly.

Investment risk is highly correlated with variations in market interest rates. This paper examines a fundamental determinant of interest rates, and therefore investment risk. Monetary policy directly impacts market interest rates. As such, it is important for risk managers and investment managers to understand the mechanics of this key macroeconomic policy. This is especially true of managers of firms that are highly capital intensive. Capital intensive firms have a relatively long planning horizon – it is thus essential for investment and risk managers to comprehend those factors that influence the cost of capital, including macroeconomic policy that affects market interest rates. The purpose of this paper is to explain the potential impact that monetary policy has on the long-run investment decision.

This article explores the role of trading volume in making out-of-sample forecasts of stock market volatility around the time of the 24 October 1929 crash. Following the recent literature on volatility forecasting, we compare the performance of symmetric and asymmetric GARCH-class models. Moreover, as the volume–volatility relationship is now well established for modern day markets, we also consider the performance of these models when volume is allowed to enter the conditional variance equation. Given the institutional evidence that trading volume was beginning to take on an increasingly important role in the eyes of investors and market regulators during the last part of the 1920s, this is a particularly insightful endeavour. Generally speaking, the volatility models with trading volume provided the best volatility forecasts after ‘Black Thursday’.

This note attempts to clarify the determination of interest rate in the long-run and short-run general equilibrium models, and to address the choice between the loanable funds market and the liquidity preference model in partial equilibrium analysis.

This note attempts to clarify the determination of interest rate in the long-run and short-run general equilibrium models, and to address the choice between the loanable funds market and the liquidity preference model in partial equilibrium analysis.

This paper examines how price shocks in antebellum slave markets were transmitted to surrounding slave markets. A newly developed time series econometric technique is utilized to estimate the transmission of price shocks among slave markets and to investigate the univariate and multivariate time series properties of slave prices in four geographically dispersed markets. The results suggest that these markets were linked and that information flowed from one market to another. The westward, expansionary path of the slave economy is confirmed by a greater magnitude of impact from price shocks in markets to the east of the location in which the shock originated and a greater degree of unidirectional price linkage between slave markets. This new empirical evidence describes the connectedness of regional slave markets in the antebellum South and demonstrates that the overall market was effective. The paper also provides a foundation for addressing additional issues such as slave price convergence.

Modern economic historians have focused their attention on the supervision and productivity of slavery and have largely ignored the roles that public policy and slave security played in the profitability of antebellum slavery. Other scholars have focused on the public security policy in the slave codes, but only as a determinant of the legal status of slaves, not their economic value. This paper investigates the relationship between slave prices and two public policies that enhanced slave security: manumission laws and slave patrol statutes. The evidence suggests that these policies were associated with slave prices and that public policy did play a significant role in the security of slave property and, thus, the viability and profitability of slavery in the Antebellum South.