Efficient electricity pricing with self-rationing

Research output: Contribution to journalArticle

43 Citations (Scopus)

Abstract

Random rationing of generation capacity is inefficient because of the externality caused by an unpriced shortage. We eliminate the inefficiency by introducing a market for capacity via a self-rationing scheme that reflects a consumer's willingness-to-pay for electricity service. This scheme defines the notion of service reliability. We derive the optimal pricing and capacity planning rules under asymmetric information and demand uncertainty. The major findings are: (1) marginal cost pricing is ex ante efficient; (2) an electric utility's installed capacity should equal the total subscription for capacity; (3) the electric utility breaks even with certainty; and (4) partial service curtailment is ex post efficient if consumer preference is weakly separable. Copyright © 1990 Kluwer Academic Publishers.
Original languageEnglish
Pages (from-to)69-81
JournalJournal of Regulatory Economics
Volume2
Issue number1
DOIs
Publication statusPublished - Mar 1990

Citation

Woo, C.-K. (1990). Efficient electricity pricing with self-rationing. Journal of Regulatory Economics, 2(1), 69-81. doi: 10.1007/BF00139363

Keywords

  • Asymmetric information
  • Electricity price
  • Consumer preference
  • Generation capacity
  • Optimal price

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