Equilibrium Storage in a Markov Economy

27 Pages Posted: 31 May 2012

See all articles by Anna Creti

Anna Creti

Université Paris Ouest - Nanterre, La Défense - EconomiX; Ecole Polytechnique, Paris - Laboratoire d'Econometrie

Bertrand Villeneuve

Université Paris-Dauphine, PSL Research University

Date Written: January 11, 2010

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."

Keywords: Price stabilization, strategic stocks, supply risk

JEL Classification: C61, Q48, L90

Suggested Citation

Creti, Anna and Villeneuve, Bertrand, Equilibrium Storage in a Markov Economy (January 11, 2010). Available at SSRN: https://ssrn.com/abstract=1302364 or http://dx.doi.org/10.2139/ssrn.1302364

Anna Creti

Université Paris Ouest - Nanterre, La Défense - EconomiX ( email )

200 Avenue de la République
Nanterre cedex, Nanterre Cedex 92000
France

Ecole Polytechnique, Paris - Laboratoire d'Econometrie ( email )

1 rue Descartes
Paris, 75005
France

Bertrand Villeneuve (Contact Author)

Université Paris-Dauphine, PSL Research University ( email )

Place du Maréchal de Lattre de Tassigny
Paris, 75016
France

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