An Adverse Selection Approach to Power Tarification


Clémence Alasseur, Ivar Ekeland, Romuald Élie, Nicolás Hernández Santibáñez and Dylan Possamaï

We study the optimal design of electricity contracts among a population of consumers with different
needs. This question is tackled within the framework of Principal-Agent problem in presence of adverse
selection. The particular features of electricity induce an unusual structure on the production cost, with
no decreasing return to scale. We are nevertheless able to provide an explicit solution for the problem
at hand. The optimal contracts are either linear or polynomial with respect to the consumption.
Whenever the outside options offered by competitors are not uniform among the different type of
consumers, we exhibit situations where the electricity provider should contract with consumers with
either low or high appetite for electricity.

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