The invisible polluter: Can regulators save consumer surplus?
AbstractConsider an electricity market populated by competitive agents using thermal generating units. Such generation involves the emission of pollutants, on which a regulator might impose constraints. Transmission capacities for sending energy may naturally be restricted by the grid facilities. Both pollution standards and trans mission capacities can impose several constraints upon the joint strategy space of the agents. We propose a coupled constraints equilibrium as a solution to the regulator’s problem of avoiding both congestion and excessive pollution. Using the coupled constraints’ Lagrange multipliers as taxation coeﬃcients the regulator can compel the agents to obey the multiple constraints. However, for this modiﬁcation of the players’ payoﬀs to induce the required behaviour a coupled constraints equilibrium needs to exist and must also be unique. A three-node market example with a dc model of the transmission line constraints described in  and  possesses these properties. We extend it here to utilise a two-period load duration curve and, in result, obtain a two-period game. The implications of the game solutions obtained for several weights, which the regulator can use to vary the level of generators’ responsibilities for the constraints’ satisfaction, for consumer and producer surpluses will be discussed.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 9890.
Date of creation: 30 Jun 2008
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Find related papers by JEL classification:
- D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
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