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Optimal storage under uncertainty: investigating the implications of frugality and prudence

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  • Tunç Durmaz

    (Economics Department, Yildiz Technical University)

Abstract

I investigate the effects of a convex marginal cost (frugality) and a convex marginal utility (prudence) on energy storage using a simple theoretical model. By characterizing the optimum, I show that prudence and frugality spur precautionary energy storage, and explain the implications of the results for a competitive market equilibrium. The analysis can be of significance for storage decisions in various industries where firms are exposed to production risks. Thus, its scope of application is not limited to the energy markets.

Suggested Citation

  • Tunç Durmaz, 2017. "Optimal storage under uncertainty: investigating the implications of frugality and prudence," Economics Bulletin, AccessEcon, vol. 37(3), pages 1624-1629.
    • Handle: RePEc:ebl:ecbull:eb-17-00289
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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