Inventory Dynamics under Transaction Costs

A conceptual model of storage behavior is developed. Optimal intertemporal pricing is derived to analyze the effects of transaction costs on storage andarbitrage pricing. It is shown how transaction costs can rationalize the existence of an inverse carrying charge for inventory. The model is applied...

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Bibliographic Details
Published in:American journal of agricultural economics 2000-05, Vol.82 (2), p.260-273
Main Authors: Chavas, Jean-Paul, Despins, Paula M., Fortenbery, T. Randy
Format: Article
Language:English
Subjects:
Agricultural economics
Arbitrage
arbitrage pricing
Carrying costs
convenience yield
Cost estimates
Economic models
G310
Inventories
Inventory
Marginal costs
Market prices
Pricing policies
Q110
Risk aversion
soybean
Soybeans
Transaction costs
Yield
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Summary:A conceptual model of storage behavior is developed. Optimal intertemporal pricing is derived to analyze the effects of transaction costs on storage andarbitrage pricing. It is shown how transaction costs can rationalize the existence of an inverse carrying charge for inventory. The model is applied to U.S. soybeans stocks for the period 1960–95. The empirical results suggest that transaction costs have a significant influence on storage behavior andintertemporal arbitrage pricing.
ISSN:0002-9092
1467-8276
DOI:10.1111/0002-9092.00023