We study an economy with traders whose payoffs are quasilinear and whose private signals are informative about an unobserved state parameter. The limit economy has infinitely many traders partitioned into a finite set of symmetry classes called types. Market mechanisms in a class that includes auctions yield the same outcome as the Walrasian rational expectations equilibrium if and only if the efficient allocation has a monotonicity property. Examples illustrate cases where they differ. Monotonicity restricts the heterogeneity among traders' types.

Climate change has become a defining issue on a global scale. With declining costs, renewables have expanded rapidly to become the preferred clean energy resources for electricity generation. With salient features of zero marginal cost and supply uncertainty, renewables present unique challenges to the electricity market design and price formation for long-run efficiency. The purpose of this paper is to review the impact of metering technology on demand-side management and price formation. We compared three cases, integrated resource planning, ex ante linear pricing, and priority service pricing, with different levels of metering technology. The cases are clarified with numerical examples, and the results are compared in terms of capacity level, capacity cost, service reliability, and social welfare. Traditionally, the electric utility industry has relied on integrated resource planning and central system operations to meet the growing demand and maintain a standard level of service reliability. During the past two decades, the liberalization of electricity markets has transformed the traditional industry practice with the introduction of market-based locational marginal pricing for improved economic efficiency. As evidenced by recent research, a growing consensus has emerged that the future transition to renewables with zero marginal cost and supply uncertainty would present fundamental challenges to the current market designs. In this paper, we examine demand-side management with priority service addressing price formation and financial viability of merchant investments from a risk perspective to guide practical pricing and investment policy decisions in the presence of supply uncertainty. To illuminate the issue, we study a few highly simplified cases for a clean power economy in the environment of a large remote island running solely on renewable energy sources, e.g., solar and winds. To meet the local electricity needs, we address several key issues including: How would the system operator keep the lights on when demand fluctuates continuously over days, weeks, and seasons, but supply is unpredictable and difficult to control? How should the price of electricity be set when the short-run marginal cost is zero? How would the market attract investments to meet the growing demand in the long term? What would be the impacts on the service reliability? To address practical implementation issues, we discuss a stochastic auction-based market platform that enables innovative demand-side management harnessing flexibility via an end-to-end business model, in ways that flexible demand devices (e.g., hot water heaters, air conditioners, energy storage) on the customer end are aggregated into a “virtual power plant” submitted by an aggregator through a supply function offer into the wholesale market as demand reserve.

Abstract Negative social stressors (e.g., perceived loneliness and/or social isolation) predict mortality in older adults; less is known about the role of positive social activities. What research does exist focuses on White adults, leaving gaps in knowledge regarding specific activities that may decrease mortality risk in Black adults. We investigated whether self-reported late-life social activity, generally and by type, predicted mortality risk in 768 Black adults (age~73yrs; non-demented at baseline) participating in MARS. Over ~6.5 follow-up years, 25% of participants died (n=192; age-at-death~83yrs). In fully-adjusted Cox models including demographic, health, and relevant psychosocial covariates, mortality risk decreased by 32% (HR=0.68,95%CI=0.49,0.93) in those with higher compared to lower social activity generally, and with higher volunteer-, church- and group-related activities specifically. Engaging in social activity, especially altruistic or faith-based activities, reduces mortality risk in older Blacks regardless of overall health or social stressors pointing toward community-based approaches to increase longevity in this population.

Abstract Previous research suggests a decline in body mass index (BMI) among older adults is associated with negative health outcomes, including mild cognitive impairment (MCI) and incident dementia (Gao et al., 2011). However, few studies have examined BMI longitudinal trajectories and how they change after MCI diagnosis among older African Americans. To characterize trajectories of change in BMI among older African American participants with no cognitive impairment at baseline we used data from the Minority Aging Research Study, MARS (N=408, 76.5% women, mean age = 73.5, mean education = 15.0). We constructed piecewise linear mixed-effects models that included a random intercept and two random slopes. The first slope began at baseline. The second slope began at MCI diagnosis allowing for acceleration in the rate of decline after the diagnosis. The results showed BMI declined over time (B=-0.19, SE=0.04, p<.001), and there was a faster decline after MCI (additional decline, B=-0.18, SE=0.068, p=.007). In a second model controlling for age, higher education was associated with a lower BMI at baseline (B=-0.36, SE=0.092, p<.001) but slower decline before MCI (B=0.02, SE=0.006, p=.001). However, after MCI the decline of participants with higher education was faster (B=-0.06, SE=0.022, p=.003). These results suggest an accelerated decline in BMI following MCI diagnosis, with higher education related to an even faster BMI decline, possibly a consequence of cognitive reserve.

In many markets, transaction prices are determined in auctions. In the most common form, prospective buyers compete by submitting bids to a seller. Each bid is an offer to buy that states a quantity and a maximum price. The seller then allocates the available supply among those offering the highest prices exceeding the seller’s asking price. The actual price paid by a successful bidder depends on a pricing rule, usually selected by the seller: two common pricing rules are that each successful bidder pays the price bid; or they all pay the same price, usually the highest rejected bid or the lowest accepted bid. Auctions have been used for millennia, and remain the simplest and most familiar means of price determination for multilateral trading without intermediary ‘market makers’ such as brokers and specialists. Their trading procedures, which simply process bids and offers, are direct extensions of the usual forms of bilateral bargaining. Auctions also implement directly the demand submission procedures used in Walrasian models of markets. They therefore have prominent roles in the theory of exchange and in studies of the effects of economic institutions on the volume and terms of trade. Their allocative efficiency in many contexts ensures their continued prominence in economic theory. They are also favored in experimental designs investigating the predictive power of economic theories. Auctions are apt subjects for applications of game theory because they present explicit trading rules that largely fix the ‘rules of the game’. Moreover, they present substantive problems of strategic behavior of practical importance. They are particularly valuable as illustrations of games of incomplete information because bidders’ private information is the main factor affecting strategic behavior. The simpler forms of auctions induce normal-form games that are essentially ‘solved’ by applying directly the basic

We posit a standard model of an asymmetric double auction with interdependent values in which each trader observes a private signal about a hidden state before submitting a bid or ask price for a unit demand or supply. The state and signals are one-dimensional, traders’ signals are independent conditional on the state, and their distributions have the strict monotone likelihood ratio property. The model encompasses auctions by allowing sellers to be non-strategic. We study a version in which there are n replicates of each type of trader, with each replicate observing a signal drawn independently from the same conditional distribution as the original trader of that type, and all traders of the same type using the same strategy. The limit economy with a countable set of traders has a unique Walrasian equilibrium, whose clearing price reveals the state. If this equilibrium is totally monotone in that each buyer’s (resp. seller’s) probability of trading decreases (resp. increases) with the state, then the limit auction has a monotone equilibrium yielding the Walrasian price as the clearing price.We present four asymptotic results as n grows large: (1) a sequence of monotone strategies comprises epsilon-equilibria if and only if limit points are monotone equilibria of the limit auction; (2) for a sequence of monotone strategy profiles converging to a monotone equilibrium, the Strong Law of Large Numbers for prices holds, in that the sequence of price functions converges a.s. to the price function of the limit equilibrium; (3) if the effect of the state on traders’ valuations is symmetric (around the equilibrium) then large but finite auctions have monotone equilibria whose outcomes approximate the Walrasian equilibrium outcome when bidders are restricted to sufficiently fine bid-grids; and (4) the same conclusion holds true without the symmetry assumption when we discretize the state space as well. Total monotonicity seems to be crucial: an example has a Walrasian equilibrium that is not the outcome of a Nash equilibrium of an auction.

Robert B. Wilson delivered his Prize Lecture on 7 December 2020. He was introduced by Professor Tore Ellingsen

Emergency procedures that keep electricity running and food banks stocked can also keep health workers in protective equipment. Emergency procedures that keep electricity running and food banks stocked can also keep health workers in protective equipment.

For over twenty years, electricity market liberalization has advanced short-term market efficiency in wholesale markets, but little progress has been made on coordinated transmission and generation investments. With fast penetration of renewables, widespread of distributed energy resources and emergence of smart-grid and energy storage technologies, the stake is growing significantly higher for the long-term efficiency of liberalized wholesale markets with an aging transmission infrastructure. This paper presents a methodology based on a general framework of two-stage stochastic optimization model for analyzing interactions between transmission and generation investments. The methodology features economic effects of prices, incentives and welfare impacts under alternative coordination approaches and cost recovery mechanisms. Application to scenarios under efficient coordination, merchant transmission, and sequential coordination are illustrated using a simple radial transmission network. Interestingly, a Boiteux-Ramsey cost sharing rule produces energy prices and social welfare impacts that appear essentially indistinguishable from those obtained under efficient coordination. (c) 2019 Elsevier B.V. All rights reserved.

We interview each other about how game theory and mechanism design evolved into practical market design. When we learned game theory, games were modeled either in terms of the strategies available to the players (“noncooperative games”) or the outcomes attainable by coalitions (“cooperative games”), and these were viewed as models for different kinds of games. The model itself was viewed as a mathematical object that could be examined in its entirety. Market design, however, has come to view these models as complementary approaches for examining different ways marketplaces operate within their economic environment. Because that environment can be complex, there will be unobservable aspects of the game. Mathematical models themselves play a less heroic, stand-alone role in market design than in the theoretical mechanism design literature. Other kinds of investigation, communication, and persuasion are important in crafting a workable design and helping it to be adopted, implemented, maintained, and adapted.

We define the class of two-player zero-sum games with payoffs having mild discontinuities, which in applications typically stem from how ties are resolved. For such games, we establish sufficient conditions for existence of a value of the game, maximin and minimax strategies for the players, and a Nash equilibrium. If all discontinuities favor one player, then a value exists and that player has a maximin strategy. A property called payoff approachability implies existence of an equilibrium, and that the resulting value is invariant: games with the same payoffs at points of continuity have the same value and -equilibria. For voting games in which two candidates propose policies and a candidate wins election if a weighted majority of voters prefer his proposed policy, we provide tie-breaking rules and assumptions about voters' preferences sufficient to imply payoff approachability. These assumptions are satisfied by generic preferences if the dimension of the space of policies exceeds the number of voters; or with no dimensional restriction, if the electorate is sufficiently large. Each Colonel Blotto game is a special case in which each candidate allocates a resource among several constituencies and a candidate gets votes from those allocated more than his opponent offers; in this case, for simple-majority rule we prove existence of an equilibrium with zero probability of ties.

Auctions that select core allocations with respect to reported values generate competitive levels of sales revenues at equilibrium and limit bidder incentives to use shills. Among core-selecting auctions, the ones that select bidder-optimal points in the core are efficient in minimizing the bidders' incentives to misreport. Those auctions select the Vickrey outcome whenever that lies in the core and otherwise select points with higher than Vickrey revenues. Among core allocations, the points that minimize total seller revenue also minimize the sum of the gains that bidders can earn from unilateral deviations. Minimum-revenue core-selecting auctions have recently been planned or implemented for several high-stakes applications.

For a finite game with perfect recall, a refinement of its set of Nash equilibria selects closed connected subsets, called solutions. Assume that each solution's equilibria use undominated strategies and some of its equilibria are quasi-perfect, and that all solutions are immune to presentation effects; namely, if the game is embedded in a larger game with more pure strategies and more players such that the original players' feasible mixed strategies and expected payoffs are preserved regardless of what other players do, then the larger game's solutions project to the original game's solutions. Then, for a game with two players and generic payoffs, each solution is an essential component of the set of equilibria that use undominated strategies, and thus a stable set of equilibria as defined by Mertens (1989).