An adverse selection approach to power pricing

DOI10.1137/19M1260578zbMATH Open1443.91193arXiv1706.01934OpenAlexW3125248342MaRDI QIDQ5220189FDOQ5220189

Dylan Possamaï, Clémence Alasseur, Nicolás Hernández Santibáñez, Ivar Ekeland, Romuald Elie

Publication date: 11 March 2020

Published in: SIAM Journal on Control and Optimization (Search for Journal in Brave)

Abstract: We study the optimal design of electricity contracts among a population of consumers with different needs. This question is tackled within the framework of Principal-Agent problems in presence of adverse selection. The particular features of electricity induce an unusual structure on the production cost, with no decreasing return to scale. We are nevertheless able to provide an explicit solution for the problem at hand. The optimal contracts are either linear or polynomial with respect to the consumption. Whenever the outside options offered by competitors are not uniform among the different type of consumers, we exhibit situations where the electricity provider should contract with consumers with either low or high appetite for electricity.

Full work available at URL: https://arxiv.org/abs/1706.01934

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zbMATH Keywords

calculus of variationsadverse selectionpower managementcontract theoryelectricity pricing\(u\)-convexity

Mathematics Subject Classification ID

Utility theory (91B16) Microeconomic theory (price theory and economic markets) (91B24) Contract theory (moral hazard, adverse selection) (91B41) Principal-agent models (91B43)

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Cited In (6)

• Pollution Regulation for Electricity Generators in a Transmission Network
• Principal-agent problem with multiple principals
• Optimal Electricity Demand Response Contracting with Responsiveness Incentives
• Dynamic pricing and strategic retailers in the energy sector: a multi-leader-follower approach
• Shadow price in the power utility case
• Sharing Profits in the Sharing Economy

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