Continuity of the equilibrium price density and its uses in peak-load pricing

Anthony Horsley and Andrew Wrobel

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: With L∞ as the commodity space, the equilibrium price density is shown to be a continuous function of the commodity characteristics. The result is based on symmetry ideas from the Hardy-Littlewood-Pólya theory of rearrangements; and it includes, but is not limited to, the case of symmetric (rearrangement-invariant) production costs and additively separable consumer utility. For continuous-time peak-load pricing of, e.g., electricity, this allows the inclusion of storage and of cross-price dependent demands. In this context a continuously varying price has two uses. First, it excludes the demand jumps that arise from discontinuous switches from one price rate to another. Second, in the operation and valuation of hydroelectric and pumped-storage plants (studied elsewhere), price continuity guarantees that their capacities (viz., the reservoir and the converter), the energy stocks and, in the case of hydro also the river flows, have well-defined marginal values.

Keywords: Price density; continuous-time peak-load pricing; pumped storage (search for similar items in EconPapers)
JEL-codes: D51 D58 L94 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2001-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://eprints.lse.ac.uk/19330/ Open access version. (application/pdf)

Related works:
Journal Article: Continuity of the equilibrium price density and its uses in peak-load pricing (2005)
Working Paper: Continuity of the Equilibrium Price Density and its Uses in Peak-Load Pricing (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:19330

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