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Prediction Markets to Forecast Electricity Demand

Author

Listed:
  • Peter Cramton
  • Luciano I. de Castro

Abstract

Forecasting electricity demand for future years is an essential step in resource planning. A common approach is for the system operator to predict future demand from the estimates of individual distribution companies. However, the predictions thus obtained may be of poor quality, since the reporting incentives are unclear. We propose a prediction market as a form of forecasting future demand for electricity. We describe how to implement a simple prediction market for continuous variables, using only contracts based on binary variables. We also discuss specific issues concerning the implementation of such a market.

Suggested Citation

  • Peter Cramton & Luciano I. de Castro, 2009. "Prediction Markets to Forecast Electricity Demand," Discussion Papers 1527, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    • Handle: RePEc:nwu:cmsems:1527
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    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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