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Equilibrium Storage in a Markov Economy

Villeneuve, Bertrand; Creti, Anna (2007-09), Equilibrium Storage in a Markov Economy. https://basepub.dauphine.fr/handle/123456789/2280

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Type
Document de travail / Working paper
Date
2007-09
Publisher
Université Paris-Dauphine
Series title
Cahiers de la Chaire Finance et Développement Durable
Series number
5
Published in
Paris
Pages
33
Metadata
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Author(s)
Villeneuve, Bertrand cc
Creti, Anna
Abstract (EN)
We model an economy that alternates randomly between abundance and scarcity episodes. We develop an original method to characterize in detail the structure of the Markovian competitive equilibrium. Accumulation and drainage of stocks are the main focuses. Economically appealing comparative statics results are proved. We also characterize stationary distribution of states. We extend the model to discuss price stabilization policies, injection and release costs, and limited storage capacity. Overall, the analysis delineates the notion of “flexible economy.”
Subjects / Keywords
Price Stabilization; Supply Risk; Strategic Stocks
JEL
Q48 - Government Policy
L90 - General
C61 - Optimization Techniques; Programming Models; Dynamic Analysis