Inventories and the Volatility of Production

Inventories and the Volatility of Production

A stylized fact associated with inventory behavior is that the variance of production exceeds the variance of sales. This paper presents a model of production decisions with demand uncertainty that incorporates nonnegativity constraints on inventories. Even with no productivity shocks, optimal behav...

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Veröffentlicht in:The American economic review 1987-09, Vol.77 (4), p.667-679
1. Verfasser: Kahn, James A.
Format: Artikel
Sprache:eng
Schlagworte:
Capital costs
Commercial production
Correlations
Demand
Demand shocks
Economic models
Economic theory
Economics
Excess demand
Industrial production
Inventories
Inventory
Inventory management
Markups
Monopolies
Production
Production costs
Production management
Social research
Stock sales
Variance analysis
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Beschreibung
Zusammenfassung:A stylized fact associated with inventory behavior is that the variance of production exceeds the variance of sales. This paper presents a model of production decisions with demand uncertainty that incorporates nonnegativity constraints on inventories. Even with no productivity shocks, optimal behavior by the firm is consistent with this stylized fact, either if demand exhibits positive serial correlation, or if the firm can backlog excess demand.
ISSN:0002-8282
1944-7981