he concept of convenience yield as a key feature of the traditional theory of supply T of storage was introduced by and later popularized by Working (1949), among others. As useful as this concept is for the limited problem of storage supplied when the difference between the expected price and spot price is zero or even negative, it can scarcely provide a general explanation of supply of storage determination; and even within its restricted scope, difficulties exist. In fact, the general view of contemporary literature is that the notion of convenience yield lacks a rigorous theoretical foundation [see for example , Sharpe (198l)l. In spite of this problem, recent work in this field continues to give the concept wide consideration, perhaps for lack of a better alternative.
The purpose of this article is to present a new approach to the theory of storage assuming a context of asymmetric information. It is found that the conceptual framework presented in this paper can actually explain the holding of inventory, even when the expected price change of the commodity stored is zero or negative, without resorting either to the concept of convenience yield or to a risk premium. These findings are shown to hold for any type of utility function exhibiting risk aversion.
TRADITIONAL SUPPLY OF STORAGE THEORY
In the traditional theory of the supply of storage, the amount of a storable commodity carried in inventory by a competitive (price-taking) firm is a function of the marginal net cost of storage and the expected marginal revenue of these stocks for the period they are held. Net storage cost consists of the carrying costs plus a risk premium minus a convenience yield. Expected storage revenue refers to the expected differential between quoted prices for two different delivery dates (commonly referred to as the "expected basis"). The maximum profit' level of storage is the point where marginal net storage cost and marginal revenue of storage are equal.