#2532. Solving dynamic stochastic models with multiple occasionally binding constraints

November 2026publication date
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Journal’s subject area:
Economics and Econometrics;
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Abstract:
Non-negativity and limitations of storage capacity, as well as minimum prices, are of particular importance for water, oil, gas, electricity and other energy carriers. Such constraints are empirically relevant; even if the historical records do not include periods when capacity limiting is mandatory or when the limit is zero, the positive likelihood that such events can occur influences rational accumulation and consumption decisions. In this article, we provide sufficient conditions for convergence and sufficient conditions for convergence of a decision algorithm, widely used for solving and describing dynamic models, that is fast if it converges.
Keywords:
Commodities; Free disposal; Numerical solutions; Storage capacity

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