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Output Uncertainty Mitigation in Competitive Markets

Author

Listed:
  • Li, Bingbing

    (Center for Mathematical Economics, Bielefeld University)

  • Long, Yan

    (Center for Mathematical Economics, Bielefeld University)

Abstract

Output uncertainty is a major concern for industries prone to ex- ogenous, persistent and large fluctuations in output, such as agri- culture, wind and solar power generation, while technology adoption aimed at mitigating output uncertainty can improve social welfare. This paper constructs a competitive market model with random out- put fluctuations to examine the scale of technology adoption at the long-term equilibrium and its comparison with the social optimum. We show that the First Welfare Theorem no longer holds in general, and depending on the characteristics of the demand function, the scale of technology adoption in the competitive market may be greater or less than the socially optimal scale.

Suggested Citation

  • Li, Bingbing & Long, Yan, 2024. "Output Uncertainty Mitigation in Competitive Markets," Center for Mathematical Economics Working Papers 698, Center for Mathematical Economics, Bielefeld University.
    • Handle: RePEc:bie:wpaper:698
    as

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    References listed on IDEAS

    as
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    4. Paul Joskow & Jean Tirole, 2006. "Retail electricity competition," RAND Journal of Economics, The RAND Corporation, vol. 37(4), pages 799-815, December.
    5. SCHMEIDLER, David, 1973. "Equilibrium points of nonatomic games," LIDAM Reprints CORE 146, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    Full references (including those not matched with items on IDEAS)

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