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A self-selection pricing mechanism for residential electricity: Measures of sustainability and equity to balance market mechanisms and government controls

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  • Zhang, Xinhua
  • Hueng, C. James
  • Lemke, Robert J.

Abstract

We design a self-selection-pricing mechanism in which an electricity supplier offers its customers an optimal menu of contracts subject to a price ceiling set by the government, a hybrid model of market mechanism and government controls. We calibrate the model using information from a residential electricity market in China. Our mechanism outperforms the tiered-electricity-pricing system in China in terms of environmental and industrial sustainability but comes at the cost of providing less protection for low-income households (i.e., less equity). We conclude by offering measures of sustainability and equity that governments could use when trying to balance the trade-off between the two.

Suggested Citation

  • Zhang, Xinhua & Hueng, C. James & Lemke, Robert J., 2023. "A self-selection pricing mechanism for residential electricity: Measures of sustainability and equity to balance market mechanisms and government controls," Journal of Policy Modeling, Elsevier, vol. 45(6), pages 1167-1183.
    • Handle: RePEc:eee:jpolmo:v:45:y:2023:i:6:p:1167-1183
    DOI: 10.1016/j.jpolmod.2023.10.002
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    More about this item

    Keywords

    Information-screening; Residential electricity pricing; Regulation; Mechanism design;
    All these keywords.

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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