An exact solution method for binary equilibrium problems with compensation and the power market uplift problem

Daniel Huppmann and Sauleh Siddiqui ()

European Journal of Operational Research, 2018, vol. 266, issue 2, 622-638

Abstract: We propose a novel method to find Nash equilibria in games with binary decision variables by including compensation payments and incentive-compatibility constraints from non-cooperative game theory directly into an optimization framework in lieu of using first-order conditions of a linearization, or relaxation of integrality conditions. The reformulation offers a new approach to obtain and interpret dual variables to binary constraints using the benefit or loss from deviation rather than marginal relaxations. The method endogenizes the trade-off between overall (societal) efficiency and compensation payments necessary to align incentives of individual players. We provide existence results and conditions under which this problem can be solved as a mixed-binary linear program.

Keywords: Binary Nash game; Non-cooperative equilibrium; Incentive compatibility; Electricity market; Uplift payments (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (26)

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Related works:
Working Paper: An Exact Solution Method for Binary Equilibrium Problems with Compensation and the Power Market Uplift Problem (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:266:y:2018:i:2:p:622-638

DOI: 10.1016/j.ejor.2017.09.032

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