Equilibrium Storage in a Markov Economy

Creti, Anna and Villeneuve, Bertrand (2008): Equilibrium Storage in a Markov Economy.

Abstract

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.”

• Item Type: MPRA Paper
• Language: English
• Keywords: Price stabilization; strategic stocks; supply risk
• Subjects: Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q48 - Government Policy; L - Industrial Organization > L9 - Industry Studies: Transportation and Utilities > L90 - General; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C61 - Optimization Techniques ; Programming Models ; Dynamic Analysis

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