Commodity storage with durable shocks: a simple Markovian model. (English) Zbl 1304.90008
This article deals with a model of commodity storage in an economy which randomly alternates between episodes of abundance and scarcity. The article begins with an overview of the existing literature and an outline of the proposed method, whose feature is that does not rely on fixed point methods but on the solution of a system of ordinary differential equations. The second section presents the model details and defines its Markov equilibrium. This is followed by a section presenting the solution of the model and the uniqueness of the equilibrium, as well as an algorithm for its calculation. The last sections of the article present the interpretation of the model and solution in terms of the behavior of the economy, the distribution of stock, the potential applications of the proposed method and suggestions for further research. The article concludes with a detailed appendix with the mathematical proofs of the described properties of the model.
Reviewer: Efstratios Rappos (Aubonne)
MSC:
| 90B05 | Inventory, storage, reservoirs |
| 91B24 | Microeconomic theory (price theory and economic markets) |
Keywords:
commodities; price stabilization; strategic stocks; supply risk; piecewise deterministic Markov modelReferences:
| [1] | Carlson, D.A., Sholtz, A.M.: Designing pollution market instruments: A case of uncertainty. Contemporary Econ. Policy 12, 114–125 (1994) · doi:10.1111/j.1465-7287.1994.tb00450.x |
| [2] | Chaton, C., Creti, A., Villeneuve, B.: Storage and security of supply in the medium run. Resour. Energy Econ. 31, 24–38 (2009) · doi:10.1016/j.reseneeco.2008.10.004 |
| [3] | Chevallier, J.: Banking and borrowing in the EU ETS: A review of economic modelling, current provisions and prospects for future design. J. Econ. Surv. 26, 157–176 (2012) · doi:10.1111/j.1467-6419.2010.00642.x |
| [4] | Cocozza-Thivent, C., Eymard, R., Mercier, S., Roussignol, M.: Characterization of the marginal distributions of Markov processes used in dynamic reliability. J. Appl. Math. Stoch. Anal. 2006, 1–18 (2006) · Zbl 1101.60068 · doi:10.1155/JAMSA/2006/92156 |
| [5] | Crawford, V.: Paul Joel, S.: Bargaining, strategic reserves, and international trade in exhaustible resources. Am. J. Agric. Econ. 66, 472–480 (1984) · doi:10.2307/1240926 |
| [6] | Davis, M.H.A.: Markov Models and Optimization, Monographs on Statistics and Applied Probability, vol. 49. Chapman & Hall, London (1993) · Zbl 0780.60002 |
| [7] | Dautray, R. (ed.): Méthodes Probabilistes pour les Equations de la Physique. Eyrolles, Paris (1989) |
| [8] | Deaton, A., Laroque, G.: On the behaviour of commodity prices. Rev. Econ. Stud. 59, 1–23 (1992) · Zbl 0729.91007 · doi:10.2307/2297923 |
| [9] | Deaton, A., Laroque, G.: Competitive storage and commodity price dynamics. J. Political Econ. 104, 896–923 (1996) · doi:10.1086/262046 |
| [10] | Devarajan, S., Weiner, R.J.: Dynamic policy coordination: Stockpiling for energy security. J. Environ. Econ. Manage. 16, 9–22 (1989) · doi:10.1016/0095-0696(89)90041-7 |
| [11] | Ejarque, J.M.: Evaluating the economic cost of natural gas strategic storage restrictions. Energy Econ. 33, 44–55 (2011) · doi:10.1016/j.eneco.2010.04.008 |
| [12] | European Regulation No 994/2010 concerning measures to safeguard security of gas supply and repealing Council Directive 2004/67/EC. |
| [13] | Helmberger, P., Weaver, R.: Welfare implications of commodity storage under uncertainty. Am. J. Agric. Econ. 59, 639–651 (1977) · doi:10.2307/1239391 |
| [14] | Hillman, A.L., Van Long, N.: Pricing and depletion of an exhaustible resource when there is anticipation of trade disruption. Q. J. Econ. 98, 215–233 (1983) · doi:10.2307/1885622 |
| [15] | Hogan, W.: Oil stockpiling: Help thy neighbor. Energy J. 4, 49–71 (1983) · doi:10.5547/ISSN0195-6574-EJ-Vol4-No3-4 |
| [16] | Hallett, H.A.J.: Optimal stockpiling in a high-risk commodity market: The case of copper. J. Econ. Dyn. Control 8, 211–238 (1984) · doi:10.1016/0165-1889(84)90034-4 |
| [17] | Massel, B.: Price stabilization and welfare. Q. J. Econ. 83, 284–298 (1961) · doi:10.2307/1883084 |
| [18] | Montero, J.P.: Marketable pollution permits with uncertainty and transactions costs. Resour. Energy Econ. 20, 27–50 (1997) · doi:10.1016/S0928-7655(97)00010-9 |
| [19] | Newbery, D., Stiglitz, J.E.: The Theory of Commodity Price Stabilization. Oxford University Press, Oxford (1981) |
| [20] | Nichols, A., Zeckhauser, R.: Stockpiling strategies and cartel prices. Bell J. Econ. 8, 66–96 (1977) · doi:10.2307/3003487 |
| [21] | Oi, W.: The desirability of price instability under perfect competition. Econometrica 29, 58–64 (1961) · doi:10.2307/1907687 |
| [22] | Routledge, B.R., Seppi, D.J., Spatt, C.S.: Equilibrium forward curves for commodities. J. Financ. 55, 1297–1338 (2000) · doi:10.1111/0022-1082.00248 |
| [23] | Schennach, S.M.: The economics of pollution permit banking in the context of title IV of the 1990 Clean Air Act amendments. J. Environ. Econ. Manage. 40, 189–210 (2000) · Zbl 0964.91036 · doi:10.1006/jeem.1999.1122 |
| [24] | Stiglitz, J.: An economic analysis of the conservation of depletable natural resources. Draft Report, IEA, Section III (1977) |
| [25] | Sweeney, J.: Economics of depletable resources: Market forces and intertemporal bias. Rev. Econ. Stud. 44, 125–142 (1977) · Zbl 0372.90016 · doi:10.2307/2296977 |
| [26] | Stephen, T.J.: Price expectations and the welfare gains from price stabilization. Am. J. Agric. Econ. 56, 706–716 (1974) · doi:10.2307/1239300 |
| [27] | Stephen, T.J.: The distribution of welfare gains from price stabilization: The case of multiplicative disturbances. Int. Econ. Rev. 17, 133–148 (1976) · Zbl 0371.90014 · doi:10.2307/2526070 |
| [28] | Waugh, F.V.: Does the consumer benefit from price instability? Q. J. Econ. 53, 602–614 (1944) · doi:10.2307/1884746 |
| [29] | Williams, J.C., Wright, Brian D.: Storage and Commodity Markets. Cambridge University Press, Cambridge (1991). |
This reference list is based on information provided by the publisher or from digital mathematics libraries. Its items are heuristically matched to zbMATH identifiers and may contain data conversion errors. In some cases that data have been complemented/enhanced by data from zbMATH Open. This attempts to reflect the references listed in the original paper as accurately as possible without claiming completeness or a perfect matching.
