Continuity of the equilibrium price density and its uses in peak-load pricing

Horsley, Anthony and Wrobel, Andrew J. (2001) Continuity of the equilibrium price density and its uses in peak-load pricing. TE (417). Suntory and Toyota International Centres for Economics and Related Disciplines, London, UK.

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Abstract

With L∞ as the commodity space, the equilibrium price density is shown to be a continuous function of the commodity characteristics. The result is based on symmetry ideas from the Hardy-Littlewood-Pólya theory of rearrangements; and it includes, but is not limited to, the case of symmetric (rearrangement-invariant) production costs and additively separable consumer utility. For continuous-time peak-load pricing of, e.g., electricity, this allows the inclusion of storage and of cross-price dependent demands. In this context a continuously varying price has two uses. First, it excludes the demand jumps that arise from discontinuous switches from one price rate to another. Second, in the operation and valuation of hydroelectric and pumped-storage plants (studied elsewhere), price continuity guarantees that their capacities (viz., the reservoir and the converter), the energy stocks and, in the case of hydro also the river flows, have well-defined marginal values.

Item Type:	Monograph (Discussion Paper)
Official URL:	http://sticerd.lse.ac.uk
Additional Information:	© 2001 the authors
Divisions:	Economics STICERD
Subjects:	H Social Sciences > HB Economic Theory
JEL classification:	D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D58 - Computable and Other Applied General Equilibrium Models L - Industrial Organization > L9 - Industry Studies: Transportation and Utilities > L94 - Electric Utilities D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D51 - Exchange and Production Economies
Date Deposited:	11 Jul 2008 14:47
Last Modified:	11 Dec 2024 18:29
URI:	http://eprints.lse.ac.uk/id/eprint/19330

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