Instability of Dynamic Inventory Systems

Jia Yan and John Liu ()

No 2008-23, Working Papers from School of Economic Sciences, Washington State University

Abstract: We show in this paper that instability is an intrinsic cause of production variability in a dynamic inventory system. We first show that a unique stationary optimal policy exists for both full-backlog and lost-sales case and under the policy a firm replenishes its inventory to a constant target level. We then express the constant inventory target as the unique steady state of the Euler’s equation governing the dynamics of target inventories. We finally show that the Euler’s equation is locally instable at the steady state but a sufficiently large refund to unsold inventory in lost-sales case can stabilize the inventory system.

Keywords: stability; production variability; dynamic inventory system; full-backlog; lost-sales (search for similar items in EconPapers)
JEL-codes: C61 C62 D92 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2008-12
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://faculty.ses.wsu.edu/WorkingPapers/Yan/volatility_workpaper.pdf First version, 2008 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 403 Forbidden (http://faculty.ses.wsu.edu/WorkingPapers/Yan/volatility_workpaper.pdf [307 Temporary Redirect]--> https://ses.wsu.edu/faculty/)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsu:wpaper:yan-4

Access Statistics for this paper

More papers in Working Papers from School of Economic Sciences, Washington State University Contact information at EDIRC.
Bibliographic data for series maintained by Danielle Engelhardt ().