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Sean P Meyn - One of the best experts on this subject based on the ideXlab platform.
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1An Extreme-Point Subdifferential Method for Convex Hull Pricing in Energy and Reserve Markets—Part I: Algorithm Structure
2016Co-Authors: Gui Wang, Uday V Shanbhag, Tongxin Zheng, Eugene Litvinov, Student Member, Senior Member, Sean P MeynAbstract:Abstract—Prices in electricity markets are given by the dual variables associated with the supply-demand constraint in the dis-patch problem. However, in unit-commitment-based day-ahead markets, these variables are not easy to obtain. A common approach relies on re-solving the dispatch problem with the commitment decisions fixed, and utilizing the associated dual variables. This avenue may lead to inadequate revenues to generators, which has led to the introduction of uplift payments made by the market operator for further compensating the generators. An alternative Pricing mechanism known as convex hull Pricing has been proposed to reduce or eliminate uplift payments. Computation of these prices requires the global maxi-mization of an associated Lagrangian dual problem. In this paper, we present an extreme-point-based procedure for obtaining a global maximizer. Unlike standard subgradient schemes where an arbitrary subgradient is used, we present an extreme-point subdifferential (EPSD) algorithm; this is a novel technique in which the steepest ascent direction is constructed by solving a continuous quadratic program. The EPSD algorithm initiates a move along this direction, employing an a priori constant steplength, with the intent of reaching the boundary of the face. A backtracking scheme selects a steplength that ensures descent with respect to a suitably defined merit function. As most electricity markets today co-optimize energy and reserves, an extension of the proposed convex hull Pricing algorithm is provided for such integrated markets. Under suitable assump-tions, we compare outcomes of energy-only and energy-reserve co-optimized markets under different Pricing and uplift rules. In these examples, Pricing rules have a major impact on the total payment while the uplift payment only accounts for a small portion of it. We also observe that it remains unclear whether Marginal-Cost Pricing or convex-hull Pricing leads to higher total payment. Index Terms—Convex hull price, electricity markets, uplift payments, nondifferentiable optimization, Lagrangian relaxation, energy-reserve co-optimization, unit commitment
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an extreme point subdifferential method for convex hull Pricing in energy and reserve markets part i algorithm structure
IEEE Transactions on Power Systems, 2013Co-Authors: Gui Wang, Uday V Shanbhag, Tongxin Zheng, Eugene Litvinov, Sean P MeynAbstract:Prices in electricity markets are given by the dual variables associated with the supply-demand constraint in the dispatch problem. However, in unit-commitment-based day-ahead markets, these variables are not easy to obtain. A common approach relies on re-solving the dispatch problem with the commitment decisions fixed, and utilizing the associated dual variables. This avenue may lead to inadequate revenues to generators, which has led to the introduction of uplift payments made by the market operator for further compensating the generators. An alternative Pricing mechanism known as convex hull Pricing has been proposed to reduce or eliminate uplift payments. Computation of these prices requires the global maximization of an associated Lagrangian dual problem. In this paper, we present an extreme-point-based procedure for obtaining a global maximizer. Unlike standard subgradient schemes where an arbitrary subgradient is used, we present an extreme-point subdifferential (EPSD) algorithm; this is a novel technique in which the steepest ascent direction is constructed by solving a continuous quadratic program. The EPSD algorithm initiates a move along this direction, employing an a priori constant steplength, with the intent of reaching the boundary of the face. A backtracking scheme selects a steplength that ensures descent with respect to a suitably defined merit function. As most electricity markets today co-optimize energy and reserves, an extension of the proposed convex hull Pricing algorithm is provided for such integrated markets. Under suitable assumptions, we compare outcomes of energy-only and energy-reserve co-optimized markets under different Pricing and uplift rules. In these examples, Pricing rules have a major impact on the total payment while the uplift payment only accounts for a small portion of it. We also observe that it remains unclear whether Marginal-Cost Pricing or convex-hull Pricing leads to higher total payment.
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efficiency and Marginal Cost Pricing in dynamic competitive markets with friction
Theoretical Economics, 2010Co-Authors: Inkoo Cho, Sean P MeynAbstract:This paper examines a dynamic general equilibrium model with supply friction. With or without friction, the competitive equilibrium is efficient. Without friction, the market price is completely determined by the Marginal production Cost. If friction is present, no matter how small, then the market price fluctuates between zero and the "choke-up" price, without any tendency to converge to the Marginal production Cost, exhibiting considerable volatility. The distribution of the gains from trading in an efficient allocation may be skewed in favor of the supplier, although every player in the market is a price taker.
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efficiency and Marginal Cost Pricing in dynamic competitive markets with friction
Conference on Decision and Control, 2007Co-Authors: Inkoo Cho, Sean P MeynAbstract:This paper examines market models with supply friction. We examine a competitive equilibrium model, and a monopolistic model in which a single firm determines the market price. The following conclusions are obtained: (i) if friction is present, no matter how small, then the market prices fluctuate between zero and the "choke-up" price, without any tendency to converge to the Marginal production Cost, exhibiting considerable volatility. This conclusion holds for both the competitive equilibrium market model, and the monopolistic market model. (ii) The long-run average price in the competitive model is always greater than the Marginal Cost, but less than the long-run average Cost in the monopolistic model. (iii) In the competitive model the consumer obtains social surplus, while in the monopolistic model the supplier extracts the entire surplus from the market.
Luca Zamparelli - One of the best experts on this subject based on the ideXlab platform.
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Average Cost and Marginal Cost Pricing in Marshall: Textual analysis and interpretation
The European Journal of the History of Economic Thought, 2009Co-Authors: Luca ZamparelliAbstract:Abstract This paper proposes a textual analysis of Marshall's theory of firm Pricing behavior under competitive conditions. Average Cost and Marginal Cost Pricing theories have very distinct origins as they are rooted, respectively, in the classical and Marginalistic theory of competition. I analyze to what extent and under which circumstances the two theories joined in the work of Alfred Marshall; and I argue that, even though only partial evidence can be found to support the adoption of the notion of Marginal Cost Pricing by Marshall, he developed some concepts, such as the distinction between short and long periods and the notion of quasi-rents, which turned out to be fundamental for the joint acceptance of Marginal Cost and average Cost Pricing principles by the Marshallian school.
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average Cost and Marginal Cost Pricing in marshall textual analysis and interpretation
Research Papers in Economics, 2007Co-Authors: Luca ZamparelliAbstract:This paper proposes a textual analysis of Marshall’s theory of firm Pricing behavior under competitive conditions. It considers to what extent average Cost and Marginal Cost Pricing rules characterize Marshall’s competitive partial equilibrium, and it shows that the two rules differ for origins and can be reconciled only with great difficulty in a general equilibrium framework.
Hai Yang - One of the best experts on this subject based on the ideXlab platform.
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bisection based trial and error implementation of Marginal Cost Pricing and tradable credit scheme
Transportation Research Part B-methodological, 2012Co-Authors: Xiaolei Wang, Hai YangAbstract:The purpose of this paper is three fold: First, it demonstrates the non-convergence of the bisection method proposed in the literature for the trial-and-error implementation of the Marginal-Cost Pricing in the absence of a demand function. Second, it provides a modified version of the bisection method and establishes its convergence. Third, it adapts the modified bisection method for the trial-and-error implementation of the tradable credit scheme proposed recently, which can emulate a congestion Pricing system in a revenue-neutral manner.
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congestion Pricing in the absence of demand functions
Transportation Research Part E-logistics and Transportation Review, 2009Co-Authors: Deren Han, Hai YangAbstract:This paper enhances a trial-and-error implementation scheme of Marginal-Cost Pricing on a transportation network, in the absence of explicit expression of the demand function. Link tolls and link flows are updated for the next trial with the revealed link flows for given current trial toll pattern. The method is quite simple, requiring only some function evaluations. Also, the step size is not required to be square summable, thereby leading to the improvement of the efficiency of the algorithm. The global convergence of the method is proved and some numerical results are reported to illustrate its performance.
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trial and error implementation of Marginal Cost Pricing on networks in the absence of demand functions
Transportation Research Part B-methodological, 2004Co-Authors: Hai Yang, Qiang Meng, Derhorng LeeAbstract:Abstract Conventional analysis of optimal congestion Pricing relies on three primary elements, namely, the speed–flow relationship, the demand function, and the generalized Cost. Analytical demand functions tailed for congestion Pricing are, however, difficult to establish in practice even with advanced transport modeling techniques. Inspired and motivated by the recent commentary and analytical works in the literature, this study proposes a trial-and-error implementation scheme of Marginal-Cost Pricing on a general road network when the demand functions are unknown. Given a trial of a set of link tolls, the revealed aggregate link flows can be observed at ease; based on the observed link flows, a new set of link tolls can be determined and used for the next trial. We propose such an iterative toll adjustment procedure based on the method of successive averages, and present a rigorous theoretical proof of its convergence. The iterative procedure presented here allows for a traffic planner to estimate easily the socially optimal congestion tolls in a network without resorting to demand functions.
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system optimum stochastic user equilibrium and optimal link tolls
Transportation Science, 1999Co-Authors: F Fumero, C Vercellis, Hai YangAbstract:Previous studies have shown that the Wardropian system optimum may not necessarily be supported as a (logit-based) stochastic user equilibrium (SUE) by finite and meaningful link tolls. This paper demonstrates that the classical principle of Marginal-Cost Pricing is still applicable in a network under SUE from the standpoint of economic benefit maximization within the context of the classical consumer behavior theory. The Marginal-Cost link tolls areshown to be meaningful from both economic and behavioral viewpoints, and therefore proposed to be a good alternative to drive a SUE flow pattern toward system optimum.
Lucas W Davis - One of the best experts on this subject based on the ideXlab platform.
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the equity and efficiency of two part tariffs in u s natural gas markets
The Journal of Law and Economics, 2012Co-Authors: Severin Borenstein, Lucas W DavisAbstract:AbstractResidential natural gas customers in the United States face volumetric charges that average about 30 percent more than the Marginal Cost of gas. This inefficient departure from Marginal Cost Pricing allows gas utilities to cover their fixed infrastructure and operating Costs. Proposals for recovering these Costs instead through fixed monthly fees are often opposed because of a widespread belief that current rate schedules have desirable distributional consequences. Using nationally representative household-level data, we show that the correlation between household income and natural gas consumption is indeed positive but surprisingly weak, so current rate schedules are only mildly progressive. In part, we argue that this is because poor households tend to have larger families and less energy-efficient homes. We calculate bill impacts under a variety of scenarios and show that even a modest energy assistance program would more than offset the distributional impact of tariff rebalancing for most low...
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do americans consume too little natural gas an empirical test of Marginal Cost Pricing
The RAND Journal of Economics, 2010Co-Authors: Lucas W Davis, Erich MuehleggerAbstract:A standard result in regulation is that efficiency requires that Marginal prices be set equal to Marginal Costs. This paper performs an empirical test of Marginal Cost Pricing in the natural gas distribution market in the United States during the period 1989-2008. For all 50 states we reject the null hypothesis of Marginal Cost Pricing. Departures from Marginal Cost Pricing are particularly severe in residential and commercial markets, where we find average markups of over 40%. Based on conservative estimates of the price elasticity of demand these distortions impose hundreds of millions of dollars of annual welfare loss. Moreover, the current Pricing schedules are an important pre-existing distortion which should be taken into account when evaluating carbon taxes and other policies aimed at addressing external Costs. Current markups for residential and commercial customers are already equivalent to a tax of over $200 per metric ton of carbon, considerably higher than the range envisioned by most economists.
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the equity and efficiency of two part tariffs in u s natural gas markets
National Bureau of Economic Research, 2010Co-Authors: Severin Borenstein, Lucas W DavisAbstract:Residential natural gas customers in the United States face volumetric charges for natural gas that average about 30% more than Marginal Cost. The large markup on natural gas - which is used to cover the fixed infrastructure and operating Costs of the local distribution companies - is widely recognized to be inefficient. Nonetheless, attempts to reduce volumetric charges, and cover the revenue shortfall through increased fixed monthly fees, have faced opposition based on the belief that current rate schedules have desirable distributional consequences. We evaluate this claim empirically using nationally-representative household-level data. We find that natural gas consumption is weakly correlated with household income, so current rate schedules are only mildly progressive. Under current rate schedules, high-volume customers pay a disproportionately large share of fixed Costs, but these exhibit a weak correlation with high-income households. The correlation is somewhat weaker still when we consider alternative indicators of household financial stress, such as poverty status or number of children in the household. We show, for example, that poor households with multiple children would receive lower bills on average under Marginal Cost Pricing. We present evidence that one cause of the weak redistributional impact of the current Pricing policy is that the poor tend to live in less energy efficient homes.
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do americans consume too little natural gas an empirical test of Marginal Cost Pricing
Research Papers in Economics, 2010Co-Authors: Lucas W Davis, Erich MuehleggerAbstract:This paper measures the extent to which prices exceed Marginal Costs in the U.S. natural gas distribution market during the period 1991-2007. We find large departures from Marginal Cost Pricing in all 50 states, with residential and commercial customers facing average markups of over 40%. Based on conservative estimates of the price elasticity of demand these distortions impose hundreds of millions of dollars of annual welfare loss. Moreover, current price schedules are an important pre-existing distortion which should be taken into account when evaluating carbon taxes and other policies aimed at addressing external Costs.
Mats Andersson - One of the best experts on this subject based on the ideXlab platform.
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Marginal Cost of railway infrastructure wear and tear for freight and passenger trains in sweden
Trasporti europei, 2011Co-Authors: Mats AnderssonAbstract:We analyse maintenance Cost data for Swedish railway infrastructure in relation to traffic volumes and network characteristics, and separate the Cost impact from passenger and freight trains. Lines with mixed passenger and freight traffic, and dedicated freight lines are analysed separately using both log-linear and Box-Cox regression models. We find that for mixed lines, the Box-Cox specification is preferred, while a log-linear model is chosen in the case of dedicated freight lines. The Cost elasticity with respect to output is found to be higher for passenger trains than for freight trains in the case of mixed lines. The Cost elasticity for freight trains on dedicated lines is higher than for freight trains on mixed lines. From a Marginal Cost Pricing perspective, freight trains on mixed lines are currently over-charged, while passenger trains on mixed lines and freight trains on dedicated lines are under-charged.
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Marginal Cost of railway infrastructure wear and tear for freight and passenger trains in sweden
2009Co-Authors: Mats AnderssonAbstract:We analyse maintenance Cost data for Swedish railway infrastructure in relation to traffic volumes and network characteristics, and separate the Cost impact from passenger and freight trains. Lines with mixed passenger and freight traffic, and dedicated freight lines are analysed separately using both log-linear and Box-Cox regression models. We find that for mixed lines, the Box-Cox specification is preferred, while a log-linear model is chosen in the case of dedicated freight lines. The Cost elasticity with respect to output is found to be higher for passenger trains than for freight trains. From a Marginal Cost Pricing perspective, freight trains are currently over-charged, while passenger trains are under-charged.
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Marginal Cost of railway infrastructure wear and tear for freight and passenger trains in sweden
International Transport Economics Conference (ITrEC) 2009 Minneapolis Minnesota USA, 2009Co-Authors: Mats AnderssonAbstract:We analyse maintenance Cost data for Swedish railway infrastructure in relation to traffic volumes and other network characteristics, and separate the Cost impact from passenger and freight trains. Lines with mixed passenger and freight traffic, and dedicated freight lines are analysed separately using both log-linear and Box-Cox regression models. We find that for mixed lines, the Box-Cox specification is preferred, while a log-linear model is chosen in the case of dedicated freight lines. The Cost elasticity with respect to output is found to be higher for passenger trains than for freight trains. From a Marginal Cost Pricing perspective, freight trains are currently paying too much, while passenger trains should be charged more. An adjusted Pricing scheme based on these results would still lead to higher revenues than today if total demand is unaffected.
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Marginal Cost Pricing of railway infrastructure operation maintenance and renewal in sweden from policy to practice through existing data
Transportation Research Record, 2006Co-Authors: Mats AnderssonAbstract:The separation of infrastructure and train operations in Europe's railway sector has increased the importance of a transparent policy for Pricing infrastructure use. This paper reviews the quality ...
