Theoretical Perspectives on three Issues of Electricity Economics
Electricity economics has stimulated the development of important branches of economic theory like the theories of peak-load and second-best pricing. Its problems are rarely simple and their difficulty is often aggravated by the non-storable nature of electricity. First intuitions can even be mis-leading. The three issues of electricity economics considered in this paper (two-part electricity pricing, the equilibria of electricity markets and their number, the endogenous determination of the extent of power outages) belong to this category. Proper answers require either the recourse to lesser known properties of the general equilibrium model (about the number of equilibria for example) or new approaches (the two-part pricing question) and models (the endogenous determination of the volume of power outages). Like other theoretical developments that have stemmed from electricity issues, these developments have a range of applications that extend beyond electricity economics.
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