The invisible polluter: Can regulators save consumer surplus?
Consider 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.
|Date of creation:||30 Jun 2008|
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- Steffan Berridge & Jacek Krawczyk, .
"Relaxation Algorithms in Finding Nash Equilibrium,"
Computing in Economics and Finance 1997
159, Society for Computational Economics.
- Krawczyk, Jacek & Zuccollo, James, 2006. "NIRA-3: An improved MATLAB package for finding Nash equilibria in infinite games," MPRA Paper 1119, University Library of Munich, Germany.
- Krawczyk, Jacek B., 2005. "Coupled constraint Nash equilibria in environmental games," Resource and Energy Economics, Elsevier, vol. 27(2), pages 157-181, June.
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