Speaker: Saed Alizamar from Yale University
Electricity Pricing with Limited Consumer Response: The Role of Smart Appliances
Seminar Abstract:Matching demand with supply has been a long-standing challenge in operating residential electricity markets. The utility firms often face stochastic demand functions that are affected by the unpredictable exogenous random shocks (e.g., outdoor weather condition). Although various Demand Response programs are in place to regulate electricity consumption, the effectiveness of these programs has been undermined, largely because the consumers have demonstrated limited capability in adjusting their household appliances' settings. In this paper, we construct a demand model to describe how consumers make consumption decisions in response to random external factors representing their ambient environment at a given price. To that end, we adopt the notion of "rational inattention" to capture the consumers' inertia in readjusting their decisions over time. Subsequently, we investigate an electricity firm’s pricing decision as well as the important role of smart appliances in driving the overall consumption patterns. Our findings highlight the nuanced implications of rationally inattentive consumers, and lead to guidelines for better regulating retail electricity markets.
Speaker Bio: Professor Alizamir’s research interests lie in the areas of social responsibility and sustainability as well as healthcare operations. His research is mainly focused on public policy-related problems in these settings that involve dynamic decision-making and learning. In studying private-public interactions, he incorporates operational elements into his analytical models and applies various tools from Operations Research and game theory. The goal of his research is to provide normative recommendations that can inform better policy decisions, especially in areas where not enough data exists to run full-fledged empirical studies. He has worked on government subsidy instruments in renewable energy industry and agriculture as well as optimal control of diagnostic systems such as nurse triage.
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