Cost allocation in energy distribution networks

David Lowing

Journal of Mathematical Economics, 2024, vol. 110, issue C

Abstract: This paper presents a cost allocation problem arising from energy distribution and proposes cost allocation rules that depend on the distribution network and consumer demands. To determine relevant rules, we adopt a normative approach and compare two principles: (i) the connection principle and (ii) the uniformity principle. The Connection rule is proposed in accordance with (i), while the Uniform rule is developed in line with (ii). However, (i) and (ii) are incompatible. To make a trade-off between them, we propose a family of Mixed rules. Each rule is axiomatically characterized. Then, we demonstrate that the Connection rule coincides with the multi-choice Shapley value of a specific multi-choice game derived from the original problem. Moreover, the Connection rule is in the Core of this game. Similarly, we show that the Uniform rule and the Mixed rules coincide with other solution concepts from multi-choice games.

Keywords: Energy distribution network; Cost allocation rules; Axiomatization; Multi-choice games (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:110:y:2024:i:c:s030440682300112x

DOI: 10.1016/j.jmateco.2023.102919

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