Journal of Regulatory Economics

, Volume 51, Issue 1, pp 41–71 | Cite as

Contracting for the second best in dysfunctional electricity markets

Original Article

Abstract

Power pools constitute a set of sometimes complex institutional arrangements for efficiency-enhancing coordination among power systems. In many developing countries, where such institutional arrangements can’t be established over the short term, there still can be scope for voluntary electricity-sharing agreements among power systems. Using a particular type of efficient risk-sharing model with no commitment we demonstrate that second-best coordination improvements can be achieved with low to moderate risks of participants leaving the agreement. In the absence of an impartial market operator who can observe production fluctuations in connected power systems, establishing quasi-markets for trading excess electricity helps to achieve some cooperation in mutually beneficial electricity sharing.

Keywords

Electricity trade Risk sharing arrangements Self-enforcing contracts 

JEL Classification

C73 L94 O13 

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Copyright information

© Springer Science+Business Media New York 2016

Authors and Affiliations

  1. 1.Birkbeck, University of LondonLondonUK
  2. 2.Development Research GroupThe World BankWashingtonUSA

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