Commodity storage with durable shocks : A simple Markovian model

Villeneuve, Bertrand; Creti, Anna

Villeneuve, Bertrand; Creti, Anna (2014), Commodity storage with durable shocks : A simple Markovian model, Mathematics and Financial Economics, 8, 2, p. 169--192. http://dx.doi.org/10.1007/s11579-013-0108-7

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Type

Article accepté pour publication ou publié

Date

2014

Journal name

Mathematics and Financial Economics

Volume

Number

Publisher

Springer

Pages

169--192

Laboratoire d'Economie de Dauphine [LEDa]
Creti, Anna
Laboratoire d'Economie de Dauphine [LEDa]

Abstract (EN)

We model an economy that alternates randomly between abundance and scarcityepisodes. 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 discussprice 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

L90 - General
C61 - Optimization Techniques; Programming Models; Dynamic Analysis
Q48 - Government Policy