Equilibrium Storage in a Markov Economy

Villeneuve, Bertrand; Creti, Anna

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

Éditeur

Université Paris-Dauphine

Titre de la collection

Cahiers de la Chaire Finance et Développement Durable

Numéro dans la collection

Ville d’édition

Paris

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Auteur(s)

Villeneuve, Bertrand

Creti, Anna

Résumé (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.”