measuring the financial impact of demand response for electricity retailers abstract due to the integration of intermittent resources of power generation such as wind and solar the amount of supplied electricity will exhibit unprecedented fluctuations electricity retailers can partially meet the challenge of matching demand and volatile supply by shifting power demand according to the fluctuating supply side the necessary technology infrastructure such as advanced metering infrastructures for this so called demand response dr has advanced however little is known about the economic dimension and further effort is strongly needed to realistically quantify the financial impact to succeed in this goal we derive an optimization problem that minimizes procurement costs of an electricity retailer in order to control demand response usage the evaluation with historic data shows that cost volatility can be reduced by 7 74 peak costs drop by 14 35 and expenditures of retailers can be significantly decreased by 3 52

demand side bidding agents modeling and simulation problems such as price volatility have been observed in electric power markets demand side participation is frequently offered as a potential solution by promising to increase market efficiency when hockey stick type offer curves are present however the individual end consumer will surely value electricity differently which makes demand side participation difficult as a group and at a bus in this paper demand is categorized into two groups one that highly values reliability and one that does not the two types are modeled separately and a new optimal bidding function is developed and tested based on this model

do health plans risk select an audit study on germany s social health insurance abstract this paper evaluates whether health plans in germany s social health insurance select on an easily observable predictor of risk geography to identify plan behavior separately from concurrent demand side adverse selection i implement a double blind audit study in which plans are contacted by fictitious applicants from different locations i find that plans are less likely to respond and follow up with applicants from higher cost regions such as west germany the results suggest that supply side selection may emerge even in heavily regulated insurance markets the prospect of risk selection by firms has implications for studies of demand side selection and regulatory policy in these settings

demand response with locational dynamic pricing to support the integration of renewables abstract electricity production from centralised and decentralised renewable energy resources in europe is gaining significance resulting in operational challenges in the electricity system although these challenges add to the locational and time dependency of the underlying cost of operating the system this variability in time and location is not reflected in residential tariff schemes consequently residential users are not incentivised to react to varying system conditions and to help the integration of renewable energy resources therefore this paper provides a theoretical framework for designing a locational dynamic pricing scheme this can be used to assess existing tariff structures for consumption and injection and can serve as a theoretical background for developing new tariff schemes starting from the underlying costs this paper shows that the potential for locational dynamic pricing depends on the locational and time dependency of its cost drivers when converting costs into tariffs the tariff design should be determined this includes the advance notice of sending tariffs to users and the length of price blocks and price patterns this tariff design should find a balance between tariff principles related to costs practicality and social acceptability on the one hand and the resulting demand response incentive on the other

game theoretic modelling of transboundary pollution transboundary pollution is pollution which is emitted in one country and deposited or causing harm in another country due to the absence of a supranational institution that could enforce international legislation transboundary externalities cannot be approached in the same way as domestic pollution problems in an attempt to find non traditional solutions to such crossborder problems recent environmental economics literature incorporates behavioural assumptions with the help of game theory this paper discusses how different types of transboundary pollution have been approached and which static and dynamic game theoretic solution concepts have been evaluated while full cooperation among countries yields the economically optimal outcome it is difficult to reach because countries are faced with an inequitable sharing of the burden of pollution abatement and with the incentive to free ride side payment schemes to aid burden sharing and strategies to circumvent free riding are reviewed issues such as transaction costs information and motivation are briefly discussed

comparing centralized and decentralized contract design enabling direct load control for reserves demand response could provide reserves to power systems and market designs should enable cost efficient exploitation of these resources in direct load control programs consumers provide demand response in exchange for incentive payments the success of such contracts is a function of level of information sharing consumer costs and power system constraints costs in this paper we compare three approaches to contract design each of which assumes different levels of consumer privacy our aim is to explore tradeoffs between privacy resource exploitation and the reward earned by the load aggregator the first approach assumes full and truthful information exchange between the consumer and the system operator we then develop a novel centralized approach in which an aggregator applies mechanism design to offer contracts to consumers who reveal partial cost information a novel decentralized approach is developed in which consumers act cooperatively to pool demand response reserves enabling them to keep individual cost information private through simulation studies we find that in the centralized approach resource exploitation rewards are highly sensitive to the accuracy of the load aggregator s consumer cost curves approximations we also find that in the decentralized approach rewards can be small especially if information exchange is costly

interruptible electric power service contracts abstract a two period model is considered in period 1 the electric power company offers for sale a set of contracts 1 p 1 2 p 2 each consumer must select one contract k and d units of energy for which she pays p k d the company must deliver d units of energy in period 2 with probability k the service may be interrupted with the complementary probability 1 k the problem is to design the optimal set of contracts to maximize social welfare when demand and supply may be random and when customers suffer a welfare loss due to service interruption the best design is shown to be a solution to an optimal control problem the results contrast sharply with previous work on the problem of pricing electric power in the face of random supply or demand

time of use rates vs hopkinson tariffs redux an analysis of the choice of rate structures in a regulated electricity distribution company abstract recent proposals to restructure the electricity industry in north america may effect the disintegration of a vertically integrated company into several smaller entities including distribution companies discos we explore whether time of use tou pricing or a hopkinson tariff would be more suitable for a regulated disco focusing on the economic efficiency of these alternative rate structures we argue that a hopkinson tariff with demand subscription is superior to tou rates as it can better handle the limited load diversity of local transmission and distribution td demands made on the contemporary disco while finessing the problem of endogenous marginal costs of local td capacity

capacity subscription solving the peak demand challenge in electricity markets in competitive power systems investment in generation capacity is left to market participants as a consequence due to the special characteristics of electricity power systems may become unacceptably unreliable during peak demand one way to solve this problem is self rationing a variant of priority service adapted to a competitive environment with this concept consumers subscribe to their anticipated demand for capacity during system peak conditions when these conditions occur the individual consumer s demand is limited to subscribed capacity this paper proposes capacity subscription self rationing in a competitive market as a solution to the challenge of matching generation to peak demand it is shown that this can be economically efficient some illustrations are given and a framework for market implementation is outlined capacity subscription enables consumers to pay for their individual preferences for uninterrupted supply thus making the generation adequacy aspect of reliability a private instead of a public good

most favored customer protection versus price discrimination over time how should a seller price capacity that has no salvage value to heterogeneous customers whose valuations are private information there are two periods and the seller cannot precommit to prices in the later period one option is price discrimination first price high then discount later if excess capacity remains by offering most favored customer protection the seller can charge more in advance but will leave capacity unsold with positive probability she favors the mfc protection when capacity is large and leans toward price discrimination when customers are more uncertain about the degree of excess demand in the first period

use of damage schedules in environmental valuation the case of urban singapore increasing concerns over environmental degradation have amplified the role of environmental economics and the valuation of non pecuniary environmental resources as tools of analysis to facilitate the design of policies to date however environmental valuation methods have continued to be unreliable misleading and contentious as a guide to resource allocations and damage compensations in this paper a damage schedule is developed based on the scales of relative importance translated from people s judgments about values of various environmental damages or losses the variance stable rank method is applied to the paired comparison responses to obtain the scale values as well as the importance of rankings statistical tests of significance are used to determine the level of the agreement among the survey respondents and the degree of correspondence between different respondent groups this will determine the number of relative importance scales required to adequately represent the responses from all respo

the interaction of direct and indirect risk selection abstract this paper analyzes the interaction of direct and indirect risk selection in health insurance markets it is shown that direct risk selection using measures unrelated to the benefit package like selective advertising or losing applications of high risk individuals nevertheless has an influence on the distortions of the benefit package caused by indirect risk selection direct risk selection drs may either increase or decrease these distortions depending on the type of equilibrium pooling or separating the type of drs positive or negative and the type of cost for drs individual specific or not regulators who succeed in reducing drs by e g banning excessive advertising or implementing fines for losing applications may therefore unintendedly mitigate or exacerbate the distortions of the benefit package caused by indirect risk selection it is shown that the interaction of direct and indirect risk selection also alters the formula for optimal risk adjustment

confronting the environmental kuznets curve t he environmental kuznets curve posits an inverted u relationship between pollution and economic development kuznets s name was apparently attached to the curve by grossman and krueger 1993 who noted its resemblance to kuznets s inverted u relationship between income inequality and development in the first stage of industrialization pollution in the environmental kuznets curve world grows rapidly because people are more interested in jobs and income than clean air and water communities are too poor to pay for abatement and environmental regulation is correspondingly weak the balance shifts as income rises leading industrial sectors become cleaner people value the environment more highly and regulatory institutions become more effective along the curve pollution levels off in the middle income range and then falls toward pre industrial levels in wealthy societies the environmental kuznets curve model has elicited conflicting reactions from researchers and policymakers applied econometricians have generally accepted the basic tenets of the model and focused on measuring its parameters their regressions typically fitted to cross sectional observations across countries or regions suggest that air and water pollution increase with development until per capita income reaches a range of 5000 to 8000 when income rises beyond that level pollution starts to decline as shown in the conventional ekc line in figure 1 in developing countries some policymakers have interpreted such results as conveying a message about priorities grow first then clean up numerous critics have challenged the conventional environmental kuznets curve both as a representation of what actually happens in the development process and as a policy prescription some pessimistic critics argue that crosssectional evidence for the environmental kuznets curve is nothing more than a

outage costs in chilean industry this paper estimates the cost of energy shortages to chilean industry the information was obtained from a sample survey carried out shortly after the 1989 electricity restriction the results obtained show that a 10 one month equiproportional restriction involves an average net outage cost of us 7 7 kw h 1 in the same scenario the average outage cost drops to us 3 2 kw h 1 when a limited selective restriction is applied we show that under current legislation the outage cost in fact lies between the costs of an equiproportional and a selective restriction however subtle modifications to legislation would make it possible to allocate the scarce supply efficiently

the influence of distributed generation penetration levels on energy markets planning of national energy policies brings new dilemmas with the introduction of distributed generators dg economic theory suggests that a perfectly competitive market would lead to efficient pricing in the absence of competition regulators play a fundamental role in attracting reasonably priced finance in order to maintain refurbish and increase the infrastructure and provide services at a reasonable cost energy market price equilibrium is mainly dependent on suppliers generators energy sources and demand represented by conventional utility grid users its behavior is similar to that of other commodities as generation becomes less centralized with the increasing economic viability of renewable energy sources new suppliers are being connected to the grid such evolution means the transition from a monopolistic market to a broader and more open environment with an increasing number of competitors we make use of variational inequalities to model a hypothetical dg market in different scenarios from monopoly to oligopoly to open market such an approach enables different equilibrium outcomes due to different dg penetration levels based on these findings we argue that energy policies for such markets must be developed according to each specific stage of the grid s lifecycle we show how energy policies and market regulations may affect such a transition which may be catastrophic if not managed properly and which is dependent on the energy mix

real options approach to renewable energy investments in mongolia developing nations are seeking alternative energy for electricity and one attractive alternative is renewable energy this research analyzes changing investment environment for renewable energy with real options approach and explores its potential in developing economies through studying the case of mongolia under coal price uncertainty to evaluate comparative attractiveness of either continuing to use coal based infrastructures or switching to renewable energy we formulate social revenue functions for the two environments assuming that renewable energy has lower external costs and coal prices follow geometric brownian motion gbm or geometric mean reverting gmr processes we find the optimal trigger coal prices for switching technologies with some scenarios in electricity price and externality characterize when renewable energy investments become attractive in contrast to conventional wisdom we identify some situations where the value of having more decision opportunities does not exceed that of a now or never decision for switching technologies and welfare losses are incurred the optimal trigger prices are higher in gbm than in gmr and our result raises the possible risks for waiting to switch energy to avoid welfare losses in mongolia the government should increase electricity prices or switch to renewable energy earlier especially when people pay more for the removal of externalities

using yield management to shift demand when the peak time is unknown traditional peak load and stochastic peak load models assume firms have prior information about when peak demand occurs however price dispersion such as is typically used by firms practicing yield management can achieve some of the same efficient demand shifting even when the peak time is unknown equilibrium price dispersion arises because of stochastic demand and price rigidities but a previously unexplored benefit of price dispersion is its ability to reduce equilibrium capacity costs through demand shifting the model also suggests how yield management now more commonly called revenue management might actually benefit business travellers contrary to the popular prejudice

non renewable and intermittent renewable energy sources friends and foes abstract this paper studies the links between non renewable and intermittent renewable energy sources in the production of electricity using u s state level data from 1998 to 2015 we find that the relationship between the price of natural gas and investments in solar and wind capacity is non linear and can be represented by an inverted u shape hence for relatively low natural gas prices the two modes of production are substitutes after a price threshold is reached the two are complementary a theoretical explanation argues that this stylized fact is the result of a trade off between two characteristics of these modes of production the high degree of flexibility of electricity production using natural gas as an input and the low marginal cost of renewable energy sources

efficient pricing and investment in electricity markets with intermittent resources facing growing technological and environmental challenges the electricity industry needs effective pricing mechanism to promote efficient risk management and investment decisions in a restructured electricity market with competitive wholesale prices and traditionally regulated retail rates however there are technical and institutional barriers that prevent dynamic pricing with price responsive demand in regions with limited energy storage capacity intermittent renewable resources present special challenges this could adversely affect the effectiveness of public policies causing inefficient investments in energy technologies in this paper we present an updated economic model of pricing and investment in restructured electricity market and use the model in a simulation study for an initial assessment of renewable energy strategy and alternative pricing mechanisms a key objective of the study is to shed light on the policy issues so that effective decisions can be made to improve efficiency

subsidy free pricing of interruptible service contracts abstract this article analyzes the issue of cross subsidy in the pricing structure of a utility offering interruptible service contracts utilizing a simple theoretical model in which available capacity is subject to random shocks we derive a set of sufficient conditions for the presence of subsidies in the pricing of priority service we find that low priority customers receive no subsidies whenever they pay prices in excess of variable costs a test for subsidies to high priority customers is derived that can be implemented utilizing available information extensions of the analysis are discussed

optimal nonlinear pricing and contingent contracts rationing of output may be required to allocate resources when it is costly to operate a system of spot markets in electric power markets for example interruptible service is the most frequently used form of capacity sensitive allocation after time of use pricing this paper examines the welfare properties and ease of implementation of alternative rationing rules and the pricing of contracts based on rationing rules the model allows for both demand and supply shocks the theoretical analysis is illustrated by application to curtailment rules and pricing in electric power markets rationing rules are a means of sharing risk and joint costs insurance provides a means of sharing the financial costs of random events however there are additional welfare gains to be obtained from pooling physical quantities of goods in the presence of random demand and supply see spulber 1985 by rationing goods the common costs of production or productive capacity can be reduced while also reducing individual risk this explains in part the extensive attention devoted to rationing of electric power electric power is subject to significant randomness in both supply and demand allocation mechanisms based on prices that adjust in real time on complete contingent contracts or on renegotiation of contracts in response to new information can involve prohibitive transaction costs avoidance of the need to ration would require inefficiently high capacity investment electric utilities must therefore employ rationing rules these rules must be

electricity time of use tariff with consumer behavior consideration abstract this paper investigates an electricity time of use tou tariff problem with the consideration of consumer behavior under the tou tariff we consider two periods the peak and base periods a two level model is established to solve the tou tariff problem in the upper level the producer determines the tou tariff with the consideration of consumer behavior in the lower level the consumers respond to the tou tariff through shifting some electricity consumption in the peak period to the base period using the traditional flat rate fr tariff as a baseline we verify the conditions under which the producer has incentives to adopt the tou tariff with the adoption of a general consumer transfer cost we solve for the optimal tou tariff under different situations our results demonstrate that proper adoption of the tou tariff can create a win win situation for both the producer and the consumers the producer can increase its profit and the consumers can save their electricity cost we further evaluate the effectiveness of the tou tariff in terms of the peak demand reduction using a quadratic transfer cost we obtain some managerial insights into the tou tariff problem and illustrate that the tou tariff is always beneficial to the producer and the consumers under the quadratic transfer cost

electricity rationing through a two stage mechanism analysis of interruptible service mechanisms has focused on the efficiency losses due to the absence of complete contingent contracts there exists a second type of inefficiency which to a large extent has been ignored it originates from the fact that the relative order or ranking of consumers willingness to pay for a given quantity generally varies throughout the contract period a more general model of electricity demand allowing for changes in the order of consumer willingness to pay for a given quantity is presented under such demand conditions the use of a two stage rationing mechanism is proposed rationing plans which maximize expected aggregate surplus are established in the first stage the second stage consists in a market for allocation rights to be operated once the states of nature are revealed allocations under this two stage mechanism are shown to be pareto superior to existing rationing plans directions for future research are discussed

markets and pricing for interruptible electric power a market is proposed for interruptible or callable forward contracts for electric power in which the consumer grants the power supplier the right to interrupt a given unit of load in return for a price discount the callable forward contracts are traded continuously until the time of use this allows recourse for those customers with uncertain demand while risk averse consumers can minimize their price risk by purchasing early callable forward contracts are simple in form and can be directly incorporated into the utility s economic dispatch procedure

residential implementation of critical peak pricing of electricity this paper investigates how critical peak pricing cpp affects households with different usage and income levels with the goalof informing policy makers who are considering the implementation of cpptariffs in the residential sector using a subset of data from thecalifornia statewide pricing pilot of 2003 2004 average load changeduring summer events annual percent bill change and post experimentsatisfaction ratings are calculated across six customer segments categorized by historical usage and income levels findings show thathigh use customers respond significantly more in kw reduction than dolow use customers while low use customers save significantly more inpercentage reduction of annual electricity bills than do high usecustomers results that challenge the strategy of targeting only high usecustomers for cpp tariffs across income levels average load and billchanges were statistically indistinguishable as were satisfaction ratesresults that are compatible with a strategy of full scale implementationof cpp rates in the residential sector finally the high use customersearning less than 50 000 annually were the most likely of the groups tosee bill increases about 5 percent saw bill increases of 10 percent ormore suggesting that any residential cpp implementation might considertargeting this customer group for increased energy efficiencyefforts

revenue implications of money creation under leviathan most governments possess a monopoly franchise in the creation of money economists provide an analytical justification for this institutional arrangement either in terms of the use of monetary aggregates for macro economic stabilization or in terms of the alleged inability of competitive markets to generate tolerably efficient monetary results any complete case for the government s monetary monopoly must however depend on a comparison of market and political arrangements a comparison that requires predictions about how governments are likely to behave once a monopoly franchise is assigned similarly such predictions are crucial in evaluating restrictions that might be imposed on the government s exercise of its money creation power in designing a monetary constitution in the analysis of political arrangements the revenue implications of the money creation power are probably more significant than considerations of either macro economic stability or optimality in the money supply although those revenue implications are incidental to demonstrating the nature of market failure in monetary arrangements they are fundamental in understanding how the government might exploit a monopoly in money creation once granted our interest in the revenue effects of money creation stems from a broader study of constitutional restrictions on the revenueraising authority of government see our book the power to create money is naturally encompassed in this restrictions on the revenue raising power must embody restrictions on the power to create money consequently the fiscal constitution has important implications for the monetary constitution in this paper we examine both the revenue implications of money creation and desirable consitutional restrictions on the money creation power within the context of a specific model of political processes

competition leverage how the demand side affects optimal risk adjustment we study optimal risk adjustment in imperfectly competitive health insurance markets when high risk consumers are less likely to switch insurer than low risk consumers insurers then have an incentive to select even if risk adjustment perfectly corrects for cost differences to achieve first best risk adjustment should overcompensate insurers for serving high risk agents second we identify a trade off between efficiency and consumer welfare reducing the difference in risk adjustment subsidies increases consumer welfare by leveraging competition from the elastic low risk market to the less elastic high risk market third mandatory pooling can increase consumer surplus further at the cost of efficiency

interruptible electricity contracts from an electricity retailer s point of view valuation and optimal interruption we consider interruptible electricity contracts issued by an electricity retailer that allow for interruptions to electric service in exchange for either an overall reduction in the price of electricity delivered or for financial compensation at the time of interruption we provide a structural model to determine electricity prices based on stochastic models of supply and demand we use stochastic dynamic programming to value interruptible contracts from the point of view of an electricity retailer and describe the optimal interruption strategy we also demonstrate that structural models can be used to value contracts in competitive markets our numerical results indicate that in a deregulated market interruptible contracts can help alleviate supply problems associated with spikes of price and demand and that competition between retailers results in lower value and less frequent interruption

optimal risk adjustment with adverse selection and spatial competition abstract paying insurers risk adjusted prices for covering different individuals can correct selection incentives and induce the market to provide optimal insurance policies to calculate the optimal risk adjusted prices we need to know a what the optimal policies are b how much they cost and c how competitive the market is we examine these issues in a model with spatial heterogeneity and adverse selection market equilibrium is characterized and delivery of the socially optimal insurance policies is possible as long as providers are paid risk adjusted fees for each individual they serve when the payment can be made on the basis of an individual s risk it should be sufficient to cover the expected cost of the socially optimal policy for that person plus a mark up if payments can be made only on the basis of a partially informative signal the optimal risk based payments should be adjusted according to a simple linear transformation identified by glazer and mcguire glazer j mcguire t 2000 optimal risk adjustment of health insurance premiums an application to managed care american economic review 90 4 1055 1071

contract durations in the electricity market causal impact of 15 min trading on the epex spot market abstract the european power exchange epex introduced two new products in 2011 and 2014 which reduce the delivery duration of electricity from 1 h to 15 min intervals these changes to the market design aim to better reflect the intermittent power generation from renewable energy sources however little is known about trading in shorter intervals and its impact on the existing market as a remedy our evaluation first shows that the market has quickly adopted the new 15 min contracts second we estimate a bayesian structural time series which measures a causal decrease of electricity prices depending on the model specification our results indicate that the reduction can be as high as 28 for existing hourly contracts subsequent to the introduction of 15 min trading third the use of 15 min contracts coincides with intermittent power generation as it incentivizes renewable energy providers to offer additional electricity altogether our findings suggest that 15 min trading is used to balance the intra hour volatility of renewable energy sources consequently this presents a blueprint for policy makers who can attain similar price reductions and larger feed ins from renewable energy sources without direct costs in all countries with high shares of renewable energy sources

a two stage mechanism to improve electricity rationing electricity cannot be stored economically and must be generated on demand because electricity demand is subject to cyclical and random fluctuations an equilibrium price would change constantly and spot pricing would generate substantial information and transactions costs in the absence of spot prices the utility must install enough capacity to meet peak demand with a given probability and design a rationing plan for when the reserve margin proves inadequate to avoid building new generation facilities electric utilities have devised innovative rationing plans these plans referred to as load management programs allow the utility to curtail loads of a pre determined group of consumers interruptible curtailable i c programs are among the most popular much of the analysis of these mechanisms has focused on the efficiency losses due to the absence of complete contingent contracts because transaction costs prevent the implementation of contracts which fully represent the states of nature there is inefficiency in allocation at the time of interruption there exists a second type of inefficiency which has largely been ignored a central hypothesis underlying all of these models is that the relative order or ranking of consumers willingness to pay remains unchanged throughout the contract period this is a fairly restrictive assumption in much the same way that prohibitive transaction costs preclude the use of complete contingent contracts these costs also make it necessary that i c contracts have relatively long durations say 3 5 years within a long contract period it seems unrealistic to assume invariance in the ordering of consumers willingness to pay thus it becomes impossible to achieve an efficient allocation at the time of interruption without some revelation by consumers of their willingness to pay at the time of interruption

impact of electricity pricing policies on renewable energy investments and carbon emissions we investigate the impact of pricing policies i e flat pricing versus peak pricing on the investment levels of a utility firm in two competing energy sources renewable and conventional with a focus on the renewable investment level we consider generation patterns and intermittency of solar and wind energy in relation to the electricity demand throughout a day industry experts generally promote peak pricing policy as it smoothens the demand and reduces inefficiencies in the supply system we find that the same pricing policy may lead to distinct outcomes for different renewable energy sources due to their generation patterns specifically flat pricing leads to a higher investment level for solar energy and it can lead to still more investments in wind energy if a considerable amount of wind energy is generated throughout the day we validate these results by using electricity generation and demand data of the state of texas we also show that flat pricing can lead to substantially lower carbon e

a market approach to long term security of supply the problem of ensuring that there is enough generation capacity to meet future demand has been an issue in market design since the beginning of the deregulation process although ideally the market itself should be enough to provide adequate investment incentives there are several factors that prevent this result from being achieved and some actual markets have already experienced problems related with a lack of generation capacity a regulatory framework to address this question is presented the procedure is based on an organized market where reliability contracts based on financial call options are auctioned so both their price and their allocation among the different plants are determined through competitive mechanisms this results in a stabilization of the income of the generators and provides a clear incentive for new generation investment with a minimum of regulatory intervention additionally the method represents a market compatible mechanism to hedge demand from the occurrence of high market prices

on the efficient market diffusion of intermittent renewable energies abstract capacity costs of renewable energies have been decreasing dramatically and are expected to fall further making them more competitive with fossils building on an analytically tractable peak load pricing model we analyze how intermittency of renewable energies affects the market diffusion that results from these lower costs in particular once renewables have become competitive by attaining the same levelized cost of electricity lcoe as fossils the marginal increase in efficient capacities due to a further cost reduction varies substantially initially it is small then it rises but it falls again once renewable capacities are large enough to satisfy the whole electricity demand at times of high availability if external costs of fossils are internalized by a pigouvian tax then perfect competition leads to efficient investments in renewable and fossil capacities even though we assume that only a subgroup of consumers can adapt their demand to price fluctuations that are caused by the intermittency of renewables moreover fossils receive a capacity payment through the market for their reliability in serving demand of non reactive consumers maximum electricity prices rise with the share of renewables if regulators impose a price cap this initially raises investments in renewables but the effect may reverse if the share of renewables is large

allocating uncertain and unresponsive resources an experimental approach we identify an important class of economic problems that arise naturally in several applications the allocation of multiple resources when there are uncertainties in demand or supply unresponsive supplies no inventories and fixed capacities and significant demand indivisibilities rigidities examples of such problems include scheduling job shops airports or supercomputers zero inventory planning and the allocation and pricing of nasa s planned space station using experimental methods we show that the two most common organizations used to deal with this problem markets and administrative procedures can perform at very low efficiencies 60 65 efficiency in a seemingly robust example thus there is a need to design new mechanisms that more efficiently allocate resources in these environments we develop and analyze two mechanisms that arise naturally from auctions used to allocate single dimensional goods these new mechanisms involve computer assisted coordination made possible by the existence of networked computers both mechanisms significantly improve on the performance of administrative and market procedures

priority service pricing investment and market organization tingent forward delivery contracts offered by a seller each customer s selection of one contract from the menu determines the customer s service order or priority in each contingency the seller rations supplies by serving customers in order of their selected priorities until the supply is exhausted or all customers are served various forms of priority service are widely

efficient and competitive rationing abstract the contracts that interest us here are called priority service contracts the salient feature of such contracts is that they specify each customer s priority in obtaining service that is they specify the tank order in which a customer is served out of the available supply until all customers are served or supply is exhausted such contracts essentially establish queues for customers in section 1 the author provides some background about priority service section 2 formulates a basic model and offer several illustrations also describes two main examples that motivate the theoretical development section 3 derives some key results that show how the prices of priority service contracts are designed to induce customers to self select efficient service orders in section 4 the author discusses various ways that state enterprises can organize markets that implement priority service efficiently in section 5 we study the operation of competitive markets for priority service section 6 concludes with some summary remarks two themes are emphasized one is that a state enterprise can promote substantial efficiency gains by substituting priority service for absent spot markets the other is that oligopolistic firms may have insufficient incentives to offer efficient product diversity consequently allocative efficiency depends on entry of numerous firms even so dispersal of supplies among many firms can prevent productive efficiency when there are advantages from pooling supplies

a capacity investment model of wind power with uncertain supply price under high penetration rate abstract with the rapid development of renewable energy the proportion of wind power in power supply has grown significantly also it influences the power price fluctuation since the marginal cost of wind power is almost zero the growth of wind power s penetration rate has led to a crowding out effect and challenged traditional power generation technology substantially reducing the power price in the market in perfect competition market the real time balance between supply and demand of power is regulated by the real time power price fluctuation so this paper models the intermittence of wind power as uncertain supply and develops a capacity investment model under the uncertainties of both supply and demand we introduce priority dispatch elasticity to describe the crowding out effect and take the power price to be endogenous in order to model the situation of high penetration rate we compare the optimal wind power capacity decision under the strategy of priority grid connection and abandoned power management our results show that optimal capacity investment is inversely related to priority dispatch elasticity under both strategies however the profit from power generation is always higher when adopting the abandoned power management strategy

reliability differentiated real time pricing of electricity optimal resource planning and power dispatch models from a societal welfare point of view imply an optimal pricing policy which is referred to here as reliability differentiated real time pricing or in short reliability differentiated pricing this pricing scheme combines real time pricing and priority pricing with reliability differentiation based on consumer outage costs this pricing policy is analyzed the model used in the analysis is developed with particular emphasis on consumer behavior and welfare effects the implications of the model for the pricing of spinning reserve and firm capacity as well as for revenue reconciliation are examined it is concluded that such a pricing scheme will in general result in greater attainable welfare than either the real time pricing or priority pricing paradigms moreover it results in the maximum attainable welfare for the system with revenue reconciliation and provides an optimal pricing scheme for spinning revenue and firm capacity

an assessment of four popular auction mechanisms in the siting of nimby facilities some experimental evidence the issue of locating locally unfriendly but socially beneficial facilities such as landfills and power stations is an important public policy concern in many countries local residents in the area where such facilities are to be located tend to exhibit strong opposition no doubt due to the asymmetric distribution of the costs and benefits of such not in my backyard nimby facilities a potentially useful mechanism for the siting of such facilities is by compensation auctions which attempt to incorporate the market mechanism into the decision making process in such auctions communities name the compensation they require to host such facilities and the community demanding the least amount of compensation gets to host the facility this research attempts to evaluate the performance of such compensation auctions using laboratory exepriments four popular auction formats are evaluated first and second price and all pay first and second price sealed bid auctions the latter two formats correspond to th

optional forward contracts for electric power markets this paper extends the idea of callable forward contracts which are potentially useful as demand side interruptible load contracts to their supply side analogues together these contracts allow market participants to take advantage of flexibility in generation or consumption to obtain a monetary benefit while simultaneously removing the risk of market price fluctuations this paper also considers the effects of strategic behavior on the part of market participants in their contract sales purchase decisions

setting health plan premiums to ensure efficient quality in health care minimum variance optimal risk adjustment abstract risk adjustment refers to the practice of paying health plans a premium per person or per family based on a formula using risk adjusters such as age or gender and weights on those adjusters one role of risk adjustment is to make sure plans have an incentive to accept all potential enrollees another role at least as important in our view is to lead health plans to choose the efficient level of quality of care for the various services they offer most of the research and policy literature on risk adjustment focuses on the first problem this paper proposes a new way to calculate weights in a risk adjustment formula that contends with both problems for a given set of adjusters we identify the weights that minimize the variance in plan predictable health care costs that are not explained by risk adjustment addressing the access problem subject to the payments satisfying conditions for an optimal risk adjuster making sure plans provide the efficient quality we call the formula minimum variance optimal risk adjustment mvora

theoretical foundations of negotiations and cost sharing in transfrontier pollution problems the negotiations model is described by a dynamic process bearing on a multilateral externality that converges to an individually rational pareto optimum the process embodies a cost sharing rule for pollutant abatement in the countries involved derived from a sharing rule of the surplus that is also shown to have strategic stability in the game theoretic sense of an imputation in the core of some cooperative game associated with the negotiation process the connections are explored between this cost sharing rule and the free rider problem in public goods theory

analysis of generation investment under different market designs in this paper a stochastic dynamic optimization model is used to analyze the effect of different market designs on generation investment and demand the expansion decisions of profit maximizing investors are simulated under four different market designs energy only capacity payment capacity obligation and capacity subscription the results show that the overall social welfare is reduced compared to a centralized social welfare optimization for the first three policies in particular an energy only market with a low price cap leads to insufficient generation investments capacity payments and obligations give additional investment incentives and more generating capacity but also result in a considerable transfer of wealth from consumers to producers due to the capacity payments in contrast the capacity subscription policy increases the social welfare and both producers and consumers benefit this is possible because capacity subscription explicitly utilizes differences in consumers preferences for uninterrupted supply this advantage must be weighed against the cost of implementation which is not included in the model

morphological analysis of energy services paving the way to quality differentiation in the power sector abstract the activation of the still predominantly passive demand side is necessary to further guarantee a stable power system in the short term and ensure capacity adequacy in the long run a system with a high share of generators with nearly no marginal costs requires new services that facilitate transmitting the right economic signals to the system stakeholders to this end we refine the notion of energy services and propose a framework to systematically design quality differentiated energy services for consumers this approach facilitates a value based economic assessment of energy services that deviates from the marginal cost paradigm we further illustrate pricing options for these new energy service products and outline infrastructural needs and additional use case specific product properties moreover we discuss how the morphological approach can be formalised using a mathematical programming formulation and introduce a complexity measure that facilitates assessing potential adoption obstacles for end consumers additionally we illustrate the practical applicability of these findings by using a prototypical implementation of a decision support system to foster differentiated energy services we recommend a more lenient regulatory regime lowering the barriers for new market entrants

contributions of neoclassical economics to public utili iy analysis neoclassical economics the dominant economics paradigm has influenced and been influenced by developments in regulated industries we identify major theoretical and empirical accomplishments discuss the impactofthese accomplishmentsonpolicydevelopment andlist the channelsthrough which the impacts are madepossible we then discuss regulatorypolitics lack ofresearchperspective an overly narrow focus on economic efficiency and the academic profession as factors limiting the impact of neoclassical economics on public policy

pricing of electric power under uncertainty information and efficiency schemes for pricing electric power are compared in terms of how well they coordinate the decisions of participants consumers suppliers regulators a scheme is analyzed along two dimensions the aspects of participants private information that the scheme reveals and the efficiency of the allocation the scheme reaches information aspects are studied within the framework of economic mechanism theory allocation efficiency is studied within a stochastic recourse model which takes into account consumer loss due to rationing

equilibrium price dispersion under demand uncertainty the roles of costly capacity and market structure when capacity is costly and prices are set in advance firms facing uncertain demand will sell output at multiple prices and limit the quantity available at each price i show that the optimal price strategy of a monopolist and the unique pure strategy nash equilibria of oligopolists both exhibit intrafirm price dispersion moreover as the market becomes more competitive prices become more dispersed a pattern documented in the airline industry while generating similar predictions the model differs from the revenue management literature because it disregards market segmentation and fare restrictions that screen customers

coexistence of long term and short term contracts we study the length of agreements in a market in which infinitely lived firms contract with agents that live for two periods firms differ in the expected values of their projects as do workers in their abilities to manage projects worker effort is not contractible and worker ability is revealed during the relationship the market dictates the trade off between sorting and incentives short and long term contracts often coexist the best firms always use short term contracts to hire high ability senior workers firms with less profitable projects use short term contracts to save on the cost of hiring junior workers whereas intermediate firms use long term agreements to provide better incentives to their workers we relate our results to the optimal assignment literature that follows becker 1973

do benefits from dynamic tariffing rise welfare effects of real time retail pricing under carbon taxation and variable renewable electricity supply we analyze the gross welfare gains from real time retail pricing in electricity markets where carbon taxation induces investment in variable renewable technologies applying a stylized numerical electricity market model we find a u shaped association between carbon taxation and gross welfare gains the benefits of introducing real time pricing can accordingly be relatively low at relatively high carbon taxes and vice versa the non monotonous change in welfare gains can be explained by corresponding changes in the inefficiency arising from under consumption during low price periods rather than by changes in wholesale price volatility our results may cast doubt on the efficiency of ongoing roll outs of advanced meters in many electricity markets since net benefits might only materialize at relatively high carbon tax levels and renewable supply shares

how does risk selection respond to risk adjustment new evidence from the medicare advantage program to combat adverse selection governments increasingly base payments to health plans and providers on enrollees scores from risk adjustment formulae in 2004 medicare began to risk adjust capitation payments to private medicare advantage ma plans to reduce selection driven overpayments but because the variance of medical costs increases with the predicted mean incentivizing enrollment of individuals with higher scores can increase the scope for enrolling overpriced individuals with costs significantly below the formula s prediction indeed after risk adjustment ma plans enrolled individuals with higher scores but lower costs conditional on their score we find no evidence that overpayments were on net reduced

insurer pricing and consumer welfare evidence from medigap this article examines the welfare impact of imperfect competition in the medicare supplement insurance medigap market two firms control nearly three fourths of the medigap market and premiums exceed claims by over 25 i find that a low price elasticity and consumers brand preferences lead firms to engage in substantial marketing and price above cost therefore the strategic behavior of insurers facing relatively inelastic demand is critical in explaining poor market performance i also find that insurers do not capture all of the rents in this market rents also accrue to actors who perform marketing functions including agents and brokers

monopoly price dispersion under demand uncertainty when a monopolist sets its price before its demand is known then it may set more than one price and limit the availability of its output at lower prices this article adds demand uncertainty and price rigidities to the standard model of monopoly pricing when there are two states of demand and the ex post monopoly price is greater when demand is high then the monopolist s optimal ex ante pricing strategy is to set two prices and limit purchases at the lower price

optimal risk adjustment in markets with adverse selection an application to managed care it is well known that adverse selection causes distortions in contracts in markets with asymmetric information taxing inefficient contracts and subsidizing the efficient ones can improve market outcomes bruce c greenwald and joseph e stiglitz 1986 although regulators rarely seem to implement tax and subsidy schemes with adverse selection motives in mind contracts are often complex and incomplete and it is the inefficient elements of the contract that are difficult to verify and hence tax or subsidize this is precisely the reason that in health insurance markets rather than subsidizing contracts regulators and payers contend with adverse selection by taxing and subsidizing the price paid to insuring health plans on the basis of observable characteristics of the persons joining the plan a practice known as risk adjustment risk adjusted premiums are paid to managed care plans plans that ration care by management rather than by conventional approaches like coinsurance and deductibles and offer a bundle of characteristics quality access for many services that is fundamentally outside the scope of direct regulation selection related incentives threaten the efficiency and fairness of this organization of health insurance markets by inducing plans to distort the quality of the services they offer to discourage high cost persons from joining the plan as managed care becomes the predominant source of health care for residents of the united states and many other countries payers attempt to address this incentive by setting a risk adjusted price that pays more for more expensive enrollees as it is conventionally practiced risk adjustment sets prices for people proportional to their expected cost based on observable characteristics the federal medicare program for example has used age sex welfare status and county of residence adjusters to set prices to managed care plans to convey how what we term conventional risk adjustment works suppose age is the risk adjuster for a medicare population over 65 if it is determined that the 75to 84 year old population costs 20 percent more than the overall average in medicare the assumption in conventional risk adjustment is that the premium paid to plans for someone in this group should be 20 percent above the average we fundamentally disagree that this is the right way to think about and do risk adjustment

large scale integration of deferrable demand and renewable energy sources we present a stochastic unit commitment model for assessing the impacts of the large scale integration of renewable energy sources and deferrable demand in power systems in terms of reserve requirements we analyze three demand response paradigms for assessing the benefits of demand flexibility the centralized co optimization of generation and demand by the system operator demand bids and the coupling of renewable resources with deferrable loads we motivate coupling as an alternative for overcoming the drawbacks of the two alternative demand response options and we present a dynamic programming algorithm for coordinating deferrable demand with renewable supply we present simulation results for a model of the western electricity coordinating council

strategic rate making in the context of dynamic ramsey pricing as a result of the public utilitie regulatory policies act of 1978 purpa state public utility commissions have begun to implement cost based rate setting procedures in order to rationalize energy choices made by utilities and utility customers this rationalization had been necessary in view of the increased competition characterizing the eletric utility industry taking these regulatory and competitive change as a point of departure we develop and implement an electricity rate setting model which is cost based which explicitly accounts for static and dynamic competitive pressures and which is welfare maximizing the model extends standard ramsey methods to include bothshort run andlong run price responses in the inverse elasticity rule we use the estimated model to evalute and design alternative rates our analysis takes a distincly strategic approach explicitly addressing competition from other fuels and the possibility of competitive bypass

pursuing economic growth in asia the environmental challenge this paper identifies and discusses the five main areas of environmental management public policy that pose serious challenges to asian governments the first is the emerging issue of siting environmentally unfriendly facilities that may be necessary for growth but with the social and environmental costs borne primarily by local host residents and neighbourhood municipalities more commonly known as the not in my backyard syndrome the second issue is the critical need for pricing of non market environmental goods third is the issue of waste generation the fourth challenge is that of transboundary pollution which has become increasingly important with regard to its effects on health and foreign relations lastly the paper discusses global warming and climate change discussions on cost benefit analysis and the more novel method of establishing damage schedules are also presented this is particularly relevant to fundamental differences between developed and less developed countries

how market design shapes the spatial distribution of power plant curtailment costs abstract when multiple power plants are curtailed at the same time and in the same region electricity system costs rise if transmission lines are congested these costs might be amplified and spatially more concentrated because there are less spatial spill overs we study how such costs and their distribution depend on the market design nodal pricing or uniform pricing we extend the literature on curtailment by considering space and market design and the literature on market design by considering curtailment we expose a dc load flow model for germany to severe correlated curtailment scenarios we find that additional costs are moderate for the simulated week curtailment of 9 3 non renewable capacity reduces welfare by 2 7 uniform pricing with nodal pricing welfare loss can be reduced by 1 5 distributional differences are multiple times larger for nodal pricing producer surplus rises more and costs are spatially more concentrated at the curtailed power plants consumer surplus becomes lower the difference is unlikely to justify changes of the current market design if also wind or photovoltaic feed in is unavailable economic impacts can decrease or increase but remain in the same order of magnitude the spatial electricity system structure matters more than the volume of curtailment

multilevel demand subscription pricing for electric power abstract this paper investigates a general demand subscription pricing policy for electric power service ie a menu of service contracts for assigning different interruption probabilities and prices to different load levels this interruptibility feature is combined with a nonlinear energy price schedule to encourage load flattening we derive a customer value model and a weighted sum objective function for the supplier and consumers for selecting optimal price structures of this type the general form of the optimal price policy is derived and discussed and the implementation methodology is outlined an illustrative example is solved in detail