Application of mechanism design to electric power markets (republished)

As competition is introduced across the electric power industry around the world, market design for the industry is urgently needed to shape its futur e structure and performance. When generator companies compete with one anot her in a deregulated market, they may not be willing to share the informati on needed to perform an economic dispatch of the generation. Using game the ory, this paper designs a new mechanism that achieves efficiency (economic dispatch) in spite of this information problem. In this mechanism, when eac h company acts in the best of its own interest, the outcome is efficient. T he paper demonstrates the merits of the mechanism by simulations including the IEEE 14-bus case.