Book contents
- Frontmatter
- Contents
- Preface
- Acknowledgments
- 1 Introduction
- Part I The basic model
- 2 Competitive equilibrium with storage
- 3 Solving for the storage equilibrium
- 4 The effects of storage on production, consumption, and prices
- 5 Convergence to the steady state
- Part II Implications of storage for research on time series
- Part III Extensions of the model
- Part IV Public interventions
- Part V Epilogue
- References
- Author index
- Subject index
3 - Solving for the storage equilibrium
Published online by Cambridge University Press: 03 February 2010
- Frontmatter
- Contents
- Preface
- Acknowledgments
- 1 Introduction
- Part I The basic model
- 2 Competitive equilibrium with storage
- 3 Solving for the storage equilibrium
- 4 The effects of storage on production, consumption, and prices
- 5 Convergence to the steady state
- Part II Implications of storage for research on time series
- Part III Extensions of the model
- Part IV Public interventions
- Part V Epilogue
- References
- Author index
- Subject index
Summary
It is unfortunate for an intuitive understanding of the competitive equilibrium with storage that numerical stochastic dynamic programming must be invoked. Much the same obstacle arises for economists studying the equilibrium among a set of spatially integrated markets. The conditions for spatial equilibrium are easy to describe: The price in one city should never be above or below the prices in the other cities by more than the price of transportation. For the many competitive shippers whose vigilance for any opportunity of extra profit keeps prices in line, the relevant calculations are simple. They look at pairs of prices and transport costs, taking them as given, and act when the differentials are large enough. For an analyst trying to model that equilibrium, the problem is a complex exercise in linear or quadratic programming. First of all, at that level of analysis the prices are endogenous. Second, the model must encompass even those cities from or to which no transportation takes place, while allowing for the possible entry of those cities on the transportation among the others.
For the analyst of spatial equilibrium, a conceptual advance comes from recognizing that the myriad decisions made within a competitive industry are like the decisions of a single entity, the “invisible hand.” The next step is to personify the invisible hand as an active intelligence, the benevolent planner. From the perspective of a technocratic planner who must allocate supplies among locations.
- Type
- Chapter
- Information
- Storage and Commodity Markets , pp. 50 - 98Publisher: Cambridge University PressPrint publication year: 1991