Rational Rationing: A Price-Control Mechanism for a Persistent Supply Shock

Tutkimustuotos: TyöpaperiWorking paperScientific

Abstrakti

We propose a simple price-control mechanism correcting for a missing short-
run response of demand to prices. It effectively implements an aggregate demand
response by a time-varying price cap that optimally adjusts to information on the
social value of rationing. A quantification obtains this information from supply
and demand bids to the Nordic power market, showing how the mechanism could
be incorporated to the market-clearing routines. The mechanism does not bind
in normal times but gains traction in a persistent supply shock and stops binding
again when the market has adjusted to the new normal.
AlkuperäiskieliEnglanti
TilaJulkaistu - 2022
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