Strategic Behavior in Day-Ahead and Real-Time Markets for Electricity: Offer Cost or Payment Cost Minimization?

This study compares the procurement cost-minimizing and productive efficiency performance of the auction mechanism used by independent system operators (ISOs) in wholesale electricity auction markets in the U.S. with that of a proposed alternative. The current practice allocates energy contracts as if the auction featured a discriminatory final payment method when, in fact, the markets are uniform price auctions. The proposed alternative explicitly accounts for the market clearing price during the allocation phase. We find that the proposed alternative largely outperforms the current practice on the basis of procurement costs in the context of simple auction markets featuring both day-ahead and real-time auctions and that the procurement cost advantage of the alternative is complete when we simulate the effects of increased competition. We also find that a trade-off between the objectives of procurement cost minimization and productive efficiency emerges in our simple auction markets and persists in the face of increased competition.

An Experimental Study of Complex-Offer Auctions: Payment Cost Minimization vs. Offer Cost Minimization

A Payment Cost Minimization (PCM) auction has been proposed as an alternative to the Offer Cost Minimization (OCM) auction to be used in wholesale electric power markets with the intention to lower the procurement cost of electricity. Efficiency concerns about this proposal have relied on the assumption of true production cost revelation. Using an experimental approach, I compare the two auctions, strictly controlling for the level of unilateral market power. A specific feature of these complex-offer auctions is that the sellers submit not only the quantities and the minimum prices at which they are willing to sell, but also the start-up fees that are designed to reimburse the fixed start-up costs of the generation plants. I find that both auctions result in start-up fees that are significantly higher than the start-up costs. Overall, the two auctions perform similarly in terms of procurement cost and efficiency. Surprisingly, I do not find a substantial difference between less market power and more market power designs. Both designs result in similar inefficiencies and equally higher procurement costs over the competitive prediction. The PCM auction tends to have lower price volatility than the OCM auction when the market power is minimal but this property vanishes in the designs with market power. These findings lead me to conclude that both the PCM and the OCM auctions do not belong to the class of truth revealing mechanisms and do not easily elicit competitive behavior.

A Simple Statistical Test of Violation of the Weak Axiom of Cost Minimization

A problem with a practical application of Varian.s Weak Axiom of Cost Minimization is that an observed violation may be due to random variation in the output quantities produced by firms rather than due to inefficiency on the part of the firm. In this paper, unlike in Varian (1985), the output rather than the input quantities are treated as random and an alternative statistical test of the violation of WACM is proposed. We assume that there is no technical inefficiency and provide a test of the hypothesis that an observed violation of WACM is merely due to random variations in the output levels of the firms being compared.. We suggest an intuitive approach for specifying a value of the variance of the noise term that is needed for the test. The paper includes an illustrative example utilizing a data set relating to a number of U.S. airlines.

Efficiency in Deregulated Electricity Markets: Offer Cost Minimization vs. Payment Cost Minimization Auction

This study of the wholesale electricity market compares the efficiency performance of the auction mechanism currently in place in U.S. markets with the performance of a proposed mechanism. The analysis highlights the importance of considering strategic behavior when comparing different institutional systems. We find that in concentrated markets, neither auction mechanism can guarantee an efficient allocation. The advantage of the current mechanism increases with increased price competition if market demand is perfectly inelastic. However, if market demand has some responsiveness to price, the superiority of the current auction with respect to efficiency is not that obvious. We present a case where the proposed auction outperforms the current mechanism on efficiency even if all offers reflect true production costs. We also find that a market designer might face a choice problem with a tradeoff between lower electricity cost and production efficiency. Some implications for social welfare are discussed as well.

A general communication cost optimization framework for big data stream processing in geo-distributed data centers

With the explosion of big data, processing large numbers of continuous data streams, i.e., big data stream processing (BDSP), has become a crucial requirement for many scientific and industrial applications in recent years. By offering a pool of computation, communication and storage resources, public clouds, like Amazon's EC2, are undoubtedly the most efficient platforms to meet the ever-growing needs of BDSP. Public cloud service providers usually operate a number of geo-distributed datacenters across the globe. Different datacenter pairs are with different inter-datacenter network costs charged by Internet Service Providers (ISPs). While, inter-datacenter traffic in BDSP constitutes a large portion of a cloud provider's traffic demand over the Internet and incurs substantial communication cost, which may even become the dominant operational expenditure factor. As the datacenter resources are provided in a virtualized way, the virtual machines (VMs) for stream processing tasks can be freely deployed onto any datacenters, provided that the Service Level Agreement (SLA, e.g., quality-of-information) is obeyed. This raises the opportunity, but also a challenge, to explore the inter-datacenter network cost diversities to optimize both VM placement and load balancing towards network cost minimization with guaranteed SLA. In this paper, we first propose a general modeling framework that describes all representative inter-task relationship semantics in BDSP. Based on our novel framework, we then formulate the communication cost minimization problem for BDSP into a mixed-integer linear programming (MILP) problem and prove it to be NP-hard. We then propose a computation-efficient solution based on MILP. The high efficiency of our proposal is validated by extensive simulation based studies.

Digital vs. conventional implant prosthetic workflows: a cost/time analysis.

OBJECTIVES The aim of this prospective cohort trial was to perform a cost/time analysis for implant-supported single-unit reconstructions in the digital workflow compared to the conventional pathway. MATERIALS AND METHODS A total of 20 patients were included for rehabilitation with 2 × 20 implant crowns in a crossover study design and treated consecutively each with customized titanium abutments plus CAD/CAM-zirconia-suprastructures (test: digital) and with standardized titanium abutments plus PFM-crowns (control conventional). Starting with prosthetic treatment, analysis was estimated for clinical and laboratory work steps including measure of costs in Swiss Francs (CHF), productivity rates and cost minimization for first-line therapy. Statistical calculations were performed with Wilcoxon signed-rank test. RESULTS Both protocols worked successfully for all test and control reconstructions. Direct treatment costs were significantly lower for the digital workflow 1815.35 CHF compared to the conventional pathway 2119.65 CHF [P = 0.0004]. For subprocess evaluation, total laboratory costs were calculated as 941.95 CHF for the test group and 1245.65 CHF for the control group, respectively [P = 0.003]. The clinical dental productivity rate amounted to 29.64 CHF/min (digital) and 24.37 CHF/min (conventional) [P = 0.002]. Overall, cost minimization analysis exhibited an 18% cost reduction within the digital process. CONCLUSION The digital workflow was more efficient than the established conventional pathway for implant-supported crowns in this investigation.

Input Price Variation Across Locations and a Generalized Measure of Cost Efficiency

We propose a nonparametric model for global cost minimization as a framework for optimal allocation of a firm's output target across multiple locations, taking account of differences in input prices and technologies across locations. This should be useful for firms planning production sites within a country and for foreign direct investment decisions by multi-national firms. Two illustrative examples are included. The first example considers the production location decision of a manufacturing firm across a number of adjacent states of the US. In the other example, we consider the optimal allocation of US and Canadian automobile manufacturers across the two countries.

Monetary cost -efficient query distribution in ISDN -connected heterogeneous databases

Current technology permits connecting local networks via high-bandwidth telephone lines. Central coordinator nodes may use Intelligent Networks to manage data flow over dialed data lines, e.g. ISDN, and to establish connections between LANs. This dissertation focuses on cost minimization and on establishing operational policies for query distribution over heterogeneous, geographically distributed databases. Based on our study of query distribution strategies, public network tariff policies, and database interface standards we propose methods for communication cost estimation, strategies for the reduction of bandwidth allocation, and guidelines for central to node communication protocols. Our conclusion is that dialed data lines offer a cost effective alternative for the implementation of distributed database query systems, and that existing commercial software may be adapted to support query processing in heterogeneous distributed database systems. ^

Autonomous underwater vehicles: development and implementation of time and energy efficient trajectories

Autonomous underwater vehicles (AUVs) are increasingly used, both in military and civilian applications. These vehicles are limited mainly by the intelligence we give them and the life of their batteries. Research is active to extend vehicle autonomy in both aspects. Our intent is to give the vehicle the ability to adapt its behavior under different mission scenarios (emergency maneuvers versus long duration monitoring). This involves a search for optimal trajectories minimizing time, energy or a combination of both. Despite some success stories in AUV control, optimal control is still a very underdeveloped area. Adaptive control research has contributed to cost minimization problems, but vehicle design has been the driving force for advancement in optimal control research. We look to advance the development of optimal control theory by expanding the motions along which AUVs travel. Traditionally, AUVs have taken the role of performing the long data gathering mission in the open ocean with little to no interaction with their surroundings, MacIver et al. (2004). The AUV is used to find the shipwreck, and the remotely operated vehicle (ROV) handles the exploration up close. AUV mission profiles of this sort are best suited through the use of a torpedo shaped AUV, Bertram and Alvarez (2006), since straight lines and minimal (0 deg - 30 deg) angular displacements are all that are necessary to perform the transects and grid lines for these applications. However, the torpedo shape AUV lacks the ability to perform low-speed maneuvers in cluttered environments, such as autonomous exploration close to the seabed and around obstacles, MacIver et al. (2004). Thus, we consider an agile vehicle capable of movement in six degrees of freedom without any preference of direction.

Dynamic pricing models for used products in remanufacturing with lost-sales and uncertain quality

In this paper, we investigate the remanufacturing problem of pricing single-class used products (cores) in the face of random price-dependent returns and random demand. Specifically, we propose a dynamic pricing policy for the cores and then model the problem as a continuous-time Markov decision process. Our models are designed to address three objectives: finite horizon total cost minimization, infinite horizon discounted cost, and average cost minimization. Besides proving optimal policy uniqueness and establishing monotonicity results for the infinite horizon problem, we also characterize the structures of the optimal policies, which can greatly simplify the computational procedure. Finally, we use computational examples to assess the impacts of specific parameters on optimal price and reveal the benefits of a dynamic pricing policy. © 2013 Elsevier B.V. All rights reserved.

Technical and allocative efficiency of irrigation water use in the Guanzhong Plain, China

Due to increasing water scarcity, accelerating industrialization and urbanization, efficiency of irrigation water use in Northern China needs urgent improvement. Based on a sample of 347 wheat growers in the Guanzhong Plain, this paper simultaneously estimates a production function, and its corresponding first-order conditions for cost minimization, to analyze efficiency of irrigation water use. The main findings are that average technical, allocative, and overall economic efficiency are 0.35, 0.86 and 0.80, respectively. In a second stage analysis, we find that farmers’ perception of water scarcity, water price and irrigation infrastructure increase irrigation water allocative efficiency, while land fragmentation decreases it. We also show that farmers’ income loss due to higher water prices can be offset by increasing irrigation water use efficiency.

Location-routing problems of semi-obnoxious facilities: approaches and decision support

A presente tese resulta de um trabalho de investigação cujo objectivo se centrou no problema de localização-distribuição (PLD) que pretende abordar, de forma integrada, duas actividades logísticas intimamente relacionadas: a localização de equipamentos e a distribuição de produtos. O PLD, nomeadamente a sua modelação matemática, tem sido estudado na literatura, dando origem a diversas aproximações que resultam de diferentes cenários reais. Importa portanto agrupar as diferentes variantes por forma a facilitar e potenciar a sua investigação. Após fazer uma revisão e propor uma taxonomia dos modelos de localização-distribuição, este trabalho foca-se na resolução de alguns modelos considerados como mais representativos. É feita assim a análise de dois dos PLDs mais básicos (os problema capacitados com procura nos nós e nos arcos), sendo apresentadas, para ambos, propostas de resolução. Posteriormente, é abordada a localização-distribuição de serviços semiobnóxios. Este tipo de serviços, ainda que seja necessário e indispensável para o público em geral, dada a sua natureza, exerce um efeito desagradável sobre as comunidades contíguas. Assim, aos critérios tipicamente utilizados na tomada de decisão sobre a localização destes serviços (habitualmente a minimização de custo) é necessário adicionar preocupações que reflectem a manutenção da qualidade de vida das regiões que sofrem o impacto do resultado da referida decisão. A abordagem da localização-distribuição de serviços semiobnóxios requer portanto uma análise multi-objectivo. Esta análise pode ser feita com recurso a dois métodos distintos: não interactivos e interactivos. Ambos são abordados nesta tese, com novas propostas, sendo o método interactivo proposto aplicável a outros problemas de programação inteira mista multi-objectivo. Por último, é desenvolvida uma ferramenta de apoio à decisão para os problemas abordados nesta tese, sendo apresentada a metodologia adoptada e as suas principais funcionalidades. A ferramenta desenvolvida tem grandes preocupações com a interface de utilizador, visto ser direccionada para decisores que tipicamente não têm conhecimentos sobre os modelos matemáticos subjacentes a este tipo de problemas.

Fibrillation auriculaire et insuffisance cardiaque : une analyse de coût comparant la stratégie de contrôle de la fréquence à celle du contrôle du rythme

Contexte : La fibrillation auriculaire est commune chez les insuffisants cardiaques. L’efficacité des stratégies de contrôle de la fréquence et du rythme s’équivalent. Nous avons comparé l’impact économique des deux stratégies de traitement chez les patients avec fibrillation auriculaire et insuffisance cardiaque. Méthode : Dans cette sous-étude de l’essai Atrial Fibrillation and Congestive Heart Failure, la consommation de soins de santé des patients Québécois ainsi que leurs coûts ont été quantifiés grâce aux banques de données de la Régie de l’assurance-maladie du Québec et de l’Ontario Case Costing Initiative. Résultats : Trois cent quatre patients ont été inclus, âgés de 68±9 ans, fraction d’éjection de 26±6%. Les caractéristiques de base étaient bien réparties entre le contrôle du rythme (N=149) et de la fréquence (N=155). Les patients soumis au contrôle de la fréquence ont eu moins de procédures cardiovasculaires (146 versus 238, P<0.001) en raison du plus faible nombre de cardioversions et de moindres coûts reliés aux antiarythmiques (48 $±203 versus 1319 $±1058 par patient, P<0.001). Ces différences ont été compensées par un surplus de dépenses dues aux hospitalisations non-cardiovasculaires, aux dispositifs cardiaques implantables et aux médicaments non-cardiovasculaires dans le groupe du contrôle de la fréquence. Au total, les coûts par patient avec les stratégies du contrôle de la fréquence et du rythme s’élèvent à 78 767 $±79 568 et 72 764 $±72 800 (P=0.49). Interprétation : Chez les patients avec fibrillation auriculaire et insuffisance cardiaque, le contrôle de la fréquence est associé avec moins de procédures cardiovasculaires et une pharmacothérapie cardiovasculaire moins coûteuse. Toutefois, les coûts associés aux arythmies représentent moins de la moitié des dépenses de santé et le total des coûts s’équilibre entre les 2 stratégies.

The sky is the limit? The determinants and constraints of European airports' commercial revenues

This study investigates the determinants of commercial and retail airport revenues as well as revenues from real estate operations. Cross-sectional OLS, 2SLS and robust regression models of European airports identify a number of significant drivers of airport revenues. Aviation revenues per passenger are mainly determined by the national income per capita in which the airport is located, the percentage of leisure travelers and the size of the airport proxied by total aviation revenues. Main drivers of commercial revenues per passenger include the total number of passengers passing through the airport, the ratio of commercial to total revenues, the national income, the share of domestic and leisure travelers and the total number of flights. These results are in line with previous findings of a negative influence of business travelers on commercial revenues per passenger. We also find that a high amount of retail space per passenger is generally associated with lower commercial revenues per square meter confirming decreasing marginal revenue effects. Real estate revenues per passenger are positively associated with national income per capita at airport location, share of intra-EU passengers and percent delayed flights. Overall, aviation and non-aviation revenues appear to be strongly interlinked, underlining the potential for a comprehensive airport management strategy above and beyond mere cost minimization of the aviation sector.

Buyer–seller interaction in experimental spatial markets

We report results from experimental spatial markets with endogenous buyer location on a discrete version of Hotelling's linear city. Buyer locations favor more often the hypothesis of transportation cost minimization than that of strategic location aimed at increasing price competition between sellers. However, the latter of the two hypotheses receives systematic support too. Differentiation by seller-subjects is substantially less than the theory would predict for the specific framework used. Our results suggest that location strategies adopted by subjects can be seen as a rational process favoring conservative product design and spatial agglomeration of economic activities.