Equilibrium Working Curves with Heterogeneous Agents

Inspired by recent advances in heterogeneous agent modeling in macroeconomics, this paper extends the competitive storage model to include risk aversion and heterogeneity in stock ownership. The papers shows that the extension allows the competitive storage model to reproduce empirically relevant Working curves, providing a behavioral foundation for a convenience yield that does not rely ad-hoc parametric specifications. Consistent with the macroeconomics literature, the mean of the commodity stock in the market is a sufficient statistics to describe the dynamics of the aggregate commodity market under heterogeneity. Consequently, representative agent modeling remains valid, but a parametric convenience yield function is necessary for the representative agent to mimic the convenience yield of storage with risk averse heterogeneous agents. This provides economic justification for the inclusion of a parametric convenience yield function in commodity pricing models.