An adverse selection approach to power pricing


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  problem 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 ofconsumers, we exhibit situations where the electricity provider should
contract with consumers with either low or high appetite for electricity.

Date: Aug 02, 2017 at 16:30 h
Venue: Beauchef 851, Sala Multimedia Sexto Piso. Torre Norte.
Speaker: Dr. Nicolás Hernández
Affiliation: U. Paris Dauphine, U. De Chile, and soon Asistant Professor  at Universidad de Michigan.
Coordinator: Prof. Abderrahim Hantoute

Posted on Jul 24, 2017 in Optimization and Equilibrium, Seminars