Investment incentives and auction design in electricity markets

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Show simple item record Fabra, Natalia Fehr, Nils-Henrik M von der Frutos, María Ángeles de 2009-05-28T13:18:09Z 2009-05-28T13:18:09Z 2008-01
dc.identifier.issn 0265-8003
dc.description.abstract Motivated by the regulatory debate in electricity markets, we seek to understand how market design affects market performance through its impact on investment incentives. For this purpose, we study a two-stage game in which firms choose their capacities under demand uncertainty prior to bidding into the spot market. We analyse a number of different market design elements, including (i) two commonly used auction formats, the uniform-price and discriminatory auctions, (ii) price-caps and (iii) bid duration. We find that, although the discriminatory auction tends to lower prices, this does not imply that investment incentives at the margin are poorer; indeed, under reasonable assumptions on the shape of the demand distribution, the discriminatory auction induces (weakly) stronger investment incentives than the uniform-price format.
dc.format.mimetype application/pdf
dc.language.iso eng
dc.publisher Centre for Economic Policy Research
dc.relation.ispartofseries Discussion Paper
dc.relation.ispartofseries 6626
dc.subject Electricity
dc.subject Investment
dc.subject Market design
dc.subject Regulatory reform and uniform price and discriminatory auctions
dc.title Investment incentives and auction design in electricity markets
dc.type workingPaper
dc.subject.eciencia Economía
dc.rights.accessRights openAccess
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