Interruption insurance for generation and distribution of electric power

We describe a simple insurance scheme for use in an environment in which consumers of electricity are differentiated by their value of uninterrupted service as well as their location. Location plays a determining role in the model, in that reliability of distribution is allowed to vary throughout the network. Consumers choose a level of compensation for service interruption and pay a premium that depends on this compensation, as well as the distribution reliability at their location. In the event of power shortages, the utility will interrupt consumers according to their selected compensation so as to minimize compensation payments. The premium schedule is designed to induce consumer self-selection which results in efficient rationing, i.e., consumers are interrupted in increasing order of their interruption losses. The tariff has the added feature of inducing consumers to purchase full insurance and thus transfers all of the risk to the utility. It is shown that with proper tuning the proposed insurance scheme is Pareto superior to a uniform service charge with random rationing.     

The complexity of resource allocation and price mechanisms under bounded rationality

Summary We develop a framework for designing and evaluating the complexity of mechanisms that allocate resources in a distributed setting to agents or processors with bounded computational ability. We discuss several mechanisms and describe the construction of efficient price based mechanisms, which exploit the decentralized aspects of the problem. These price mechanisms are polynomial in the number of resources, precision of the solution, and the logarithm of the number of agents.We thank Thomas Marschak and a anonymous referee for helpful suggestions. This research was been supported by National Science Foundation Grant IRI-8902813.     

Scoring rules: an alternative parameterization

This note presents an alternative parameterization of any scoring rule that satisfies the score-expansion property. This parameterization is based on the vector that specifies, for every number of alternatives k, k ≥ 3, the minimal size of a coalition that can veto an alternative which is preferred by everybody outside the coalition. Our result sheds new light on the commonly used plurality and Borda rules, as well as the inverse plurality rule and any “vote for t alternatives rule”.     

Pre-assigned rents and bureaucratic friction

In this paper we study the endogenous determination of bureaucratic friction in a bureaucratic contest with () and without (n = 1) rent contestability. When n= 1 bureaucratic impediments induce the individual to undertake rent-securing activities at the same level as in the two-player rent-seeking contest. However, under rent contestability the bureaucracy no longer serves as a means of extracting resources from the public. The paper concludes with the study of the effect of ‘net costs’ on bureaucratic friction. It turns out that under cotestability the only reason for creating bureaucratic friction is the ‘negative costs’ it incurs while when n = 1 the effect of the bureaucrat's net costs of generating bureaucratic friction on the optimal degree of such friction is ambiguous. Received: October 30, 2000 / Accepted: December 28, 2001 RID="*" ID="*" The authors are grateful to two anonymous referees for their valuable comments     

Market Response to Liquidity Improvements: Evidence from Exchange Listings

The study examines a sample of 895 stocks that moved from Nasdaq to the New York Stock Exchange or to the American Stock Exchange (Amex) between 1971 and 1994. We show how various measures of liquidity such as the bid‐ask spread, trading volume, and stock price precision improve in somewhat different ways upon transfer to NYSE (Amex). We also find that reductions in trading costs (percentage spread) and in pricing error volatility (Hasbrouck's σ₅) can explain most of stock market's positive response to exchange listing. Thus, liquidity has many facets and cannot be represented by the bid‐ask spread alone.     

Asymmetric first-price auctions with uniform distributions: analytic solutions to the general case

In 1961, Vickrey posed the problem of finding an analytic solution to a first-price auction with two buyers having valuations uniformly distributed on ${[\underline{v}_{1}, \overline{v}_{1}]}$ and ${[\underline{v}_{2}, \overline{v}_{2}]}$ . To date, only special cases of the problem have been solved. In this paper, we solve this general problem and in addition allow for the possibility of a binding minimum bid. Several interesting examples are presented, including a class where the two bid functions are linear.     

Prize sharing in collective contests

The characteristics of endogenously determined sharing rules and the group-size paradox are studied in a model of group contest with the following features: (i) The prize has mixed private–public good characteristics. (ii) Groups can differ in marginal cost of effort and their membership size. (iii) In each group the members decide how much effort to put without observing the sharing rules of the other groups. It is shown that endogenous determination of group sharing rules completely eliminates the group-size paradox, i.e. a larger group always attains a higher winning probability than a smaller group, unless the prize is purely private. In addition, an interesting pattern of equilibrium group sharing rules is revealed: The group attaining the lower winning probability is the one choosing the rule giving higher incentives to the members.     

Optimal transmission switching: economic efficiency and market implications

Traditionally, transmission assets for bulk power flow in the electric grid have been modeled as fixed assets in the short run, except during times of forced outages or maintenance. This traditional view does not permit reconfiguration of the transmission grid by the system operators to improve system performance and economic efficiency. The current push to create a smarter grid has brought to the forefront the possibility of co-optimizing generation along with the network topology by incorporating the control of transmission assets within the economic dispatch formulations. Unfortunately, even though such co-optimization improves the social welfare, it may be incompatible with prevailing market design practices since it can create winners and losers among market participants and it has unpredictable distributional consequences in the energy market and in the financial transmission rights (FTR) market. In this paper, we first provide an overview of recent research on optimal transmission switching, which demonstrates the substantial economic benefit that is possible even while satisfying standard N−1 reliability requirements. We then discuss various market implications resulting from co-optimizing the network topology with generation and we examine how transmission switching may affect locational Marginal Prices (LMPs), i.e., energy prices, and revenue adequacy in the FTR market when FTR settlements are financed by congestion revenues.     

The efficacy and efforts of interest groups in post elections policy formation

This paper presents a new model of interest groups and policy formation in the legislature. In our setting, the already given party ideological predispositions and power distribution determine the expected policy outcome. Our analysis applies to the case of un-enforced or enforced party discipline as well as to two-party and multi-party (proportional representation) electoral systems. The interest groups’ objective is to influence the outcome in their favor by engaging in a contest that determines the final decision in the legislature. Our first result clarifies how the success of an interest group hinges on the dominance of its ideologically closer party and, in general, the coalition/opposition blocks of parties under un-enforced party or coalition/opposition discipline. Such dominance is defined in terms of ideological inclination weighted by power. Our second result clarifies how the success of an interest group hinges on the dominance of its ideology in the ruling coalition (party) in a majoritarian system with enforced coalition (party) discipline. We then clarify under what condition an interest group prefers to direct its lobbying efforts to two parties or the two coalition and opposition blocks of parties under un-enforced discipline rather than to the members of the ruling coalition (party) under enforced discipline. The lobbying efforts under un-enforced and enforced party discipline are also compared. Finally, we clarify the effect of ideological predispositions and power on the efforts of the interest groups.