Contract Theory and Applications
http://lists.repec.org/mailman/listinfo/nep-cta
Contract Theory and Applications
2024-04-15
Valuation of Power Purchase Agreements for Corporate Renewable Energy Procurement
http://d.repec.org/n?u=RePEc:arx:papers:2403.08846&r=cta
Corporate renewable power purchase agreements (PPAs) are long-term contracts that enable companies to source renewable energy without having to develop and operate their own capacities. Typically, producers and consumers agree on a fixed per-unit price at which power is purchased. The value of the PPA to the buyer depends on the so called capture price defined as the difference between this fixed price and the market value of the produced volume during the duration of the contract. To model the capture price, practitioners often use either fundamental or statistical approaches to model future market prices, which both have their inherent limitations. We propose a new approach that blends the logic of fundamental electricity market models with statistical learning techniques. In particular, we use regularized inverse optimization in a quadratic fundamental bottom-up model of the power market to estimate the marginal costs of different technologies as a parametric function of exogenous factors. We compare the out-of-sample performance in forecasting the capture price using market data from three European countries and demonstrate that our approach outperforms established statistical learning benchmarks. We then discuss the case of a photovoltaic plant in Spain to illustrate how to use the model to value a PPA from the buyer's perspective.
Roozbeh Qorbanian
Nils L\"ohndorf
David Wozabal
2024-03
Product Design in a Cournot Duopoly
http://d.repec.org/n?u=RePEc:pav:demwpp:demwp0216&r=cta
Product design is studied in a simple duopoly where firms compete Ã la Cournot, goods are hedonically differentiated and consumers have preferences defined over characteristics. What we find is that, in equilibrium, firms choose the same product’s design. This results in horizontal product differentiation being minimal.
Daniel
Hedonic Product Differentiation, Horizontal Differentiation, Product Design, Cournot Competition
2024-03
Equitable Pricing in Auctions
http://d.repec.org/n?u=RePEc:arx:papers:2403.07799&r=cta
We study how pricing affects the division of surplus among buyers in auctions for multiple units. Our equity objective may be important, e.g., for competition concerns in downstream markets, complementing the long-standing debate on revenue and efficiency. We study a canonical model of auctions for multiple indivisible units with unit demand buyers and valuations with a private and a common component and consider all pricing rules that are a mixture (i.e., a convex combination) of pay-as-bid and uniform pricing. We propose the winners' empirical variance (WEV), the expected empirical variance of surplus among the winners, as a metric for surplus equity. We show that, for a range of private-common value proportions, a strictly interior mix of pay-as-bid and uniform pricing minimizes WEV. From an equity perspective, auctions with a higher private value component benefit from more price discrimination, whereas only auctions with a sufficiently high common value justify a more uniform pricing rule. We provide a criterion under which strictly mixed pricing dominates uniform pricing, a partial ranking of different mixed pricing formats, and bounds on the WEV-minimizing pricing under the assumption of log-concave signal distributions. In numerical experiments, we further illustrate the WEV-minimal pricing as a function of the private-common-value mix.
Simon Finster
Patrick Loiseau
Simon Mauras
Mathieu Molina
Bary Pradelski
2024-03
Competing Mechanisms in Games Played Through Agents: Theory and Experiment
http://d.repec.org/n?u=RePEc:arx:papers:2403.03317&r=cta
This paper proposes Competing Mechanism Games Played Through Agent (CMGPTA), an extension of the GPTA (Prat and Rustichini (2003)), where a Principal can offer any arbitrary mechanism that specifies a transfer schedule for each agent conditional on all Agents' messages. We identify the set of equilibrium allocations using deviator-reporting mechanisms (DRMs) on the path and single transfer schedules off the path. We design a lab experiment implementing DRMs. We observe that implemented outcomes are efficient more often than random. A majority of the time, Agents do tell the truth on the identity of a deviating Principal, despite potential gains from (tacit) collusion on false reports. As play progresses, Agents learn to play with their counterparty Agent with the average predicted probability of collusion on false reports across groups increasing from about 9% at the beginning of the experiment to just under 20% by the end. However, group heterogeneity is significant.
Seungjin Han
Andrew Leal
2024-03