Mathematics and Financial Economics

, Volume 8, Issue 2, pp 169–192 | Cite as

Commodity storage with durable shocks: a simple Markovian model

Article

Abstract

We model an economy that alternates randomly between abundance and scarcity episodes. We 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 the 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

Commodities Price stabilization Strategic stocks  Supply risk  Piecewise deterministic Markov model 

JEL classification

C61 Q48 L90 

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Copyright information

© Springer-Verlag Berlin Heidelberg 2013

Authors and Affiliations

  1. 1.Université Paris-Dauphine and Ecole PolytechniqueParisFrance
  2. 2.Université Paris-Dauphine and CRESTParisFrance

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