We study the market for emission allowances stipulated in the 1990 Clean Air Act Amendment. We assume that the number of allowances is fixed and that demand is affected by a stochastic parameter that follows a Wiener process ('Brownian motion'). The optimal investment policy for scrubbers is...

System operators in the electricity industry purchase reserve capacity in a procurement auction in which suppliers offer two-part bids, one part for making capacity available and another part for supplying incremental energy when called. Key ingredients of an efficient auction design are the...

ISO New England proposes reserve markets designed to improve the existing forward reserve market and improve pricing during real-time reserve shortages. We support all of the main elements of the proposal. For example, we agree that little is gained by allowing reserve availability bids in the...

Priority service offers a menu of contingent contracts for distribution of scarce supplies. Prices inducing customers' efficient self-selection are expectations of spot prices for comparable service. Customers' selections reveal the benefit of capacity expansion. Priority service can be...

Recently issued U.S. Federal Energy Regulatory Commission regulations require comparable treatment of demand reduction and generation in the wholesale electric market so that they are compensated at the same market clearing price. The new regulations measure demand reduction as a reduction from...