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Equilibrium Storage in a Markov Economy

  • Creti, Anna
  • Villeneuve, Bertrand

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."

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File URL: https://mpra.ub.uni-muenchen.de/20520/1/MPRA_paper_20520.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 20520.

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Date of creation: 11 Jan 2010
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Handle: RePEc:pra:mprapa:20520
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  13. Williams,Jeffrey C. & Wright,Brian D., 1991. "Storage and Commodity Markets," Cambridge Books, Cambridge University Press, number 9780521326162, 1.
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  17. repec:oup:restud:v:59:y:1992:i:1:p:1-23 is not listed on IDEAS
  18. Vincent P. Crawford & Joel Sobel & Ichiro Takahashi, 1984. "Bargaining, Strategic Reserves, and International Trade in Exhaustible Resources," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 66(4), pages 472-480.
  19. Hallett, A. J. Hughes, 1984. "Optimal stockpiling in a high-risk commodity market the case of copper," Journal of Economic Dynamics and Control, Elsevier, vol. 8(2), pages 211-238, November.
  20. Hennessy, David A. & Roosen, Jutta, 1999. "Stochastic Pollution, Permits, and Merger Incentives," Journal of Environmental Economics and Management, Elsevier, vol. 37(3), pages 211-232, May.
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  22. Creti, Anna & Villeneuve, Bertrand, 2009. "Gas storage and security of Supply," Economics Papers from University Paris Dauphine 123456789/5383, Paris Dauphine University.
  23. Stephen J. Turnovsky, 1974. "Price Expectations and the Welfare Gains from Price Stabilization," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 56(4), pages 706-716.
  24. Olivier ROUSSE & Benoît SEVI, 2006. "Banking behavior under uncertainty: Evidence from the US Sulfur Dioxide Emissions Allowance Trading Program," Cahiers du CREDEN (CREDEN Working Papers) 06.02.63, CREDEN (Centre de Recherche en Economie et Droit de l'Energie), Faculty of Economics, University of Montpellier 1.
  25. Arye L. Hillman & Ngo Van Long, 1983. "Pricing and Depletion of an Exhaustible Resource When There is Anticipation of Trade Disruption," The Quarterly Journal of Economics, Oxford University Press, vol. 98(2), pages 215-233.
  26. Turnovsky, Stephen J, 1976. "The Distribution of Welfare Gains from Price Stabilization: The Case of Multiplicative Disturbances," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 17(1), pages 133-48, February.
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