NDLI: Optimal agency contract for incentive and control under moral hazard in dynamic electric power networks

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Optimal agency contract for incentive and control under moral hazard in dynamic electric power networks

Content Provider	IET Digital Library
Author	Wasa, Yasuaki Hirata, Kenji Uchida, Kenko
Abstract	The authors propose an optimal contract mechanism under moral hazard in discrete-time dynamic electric power networks. As the utility (system operator) cannot adjust the control input of the agents (end-users) directly in real time out of respect for individual decision–making, the agents’ control input maximising their own profit does not always maximise social welfare. To avoid the issue, the authors introduce an aggregator as intermediary between the utility and the agents. The aggregator pays compensation for defective ancillary services, which are caused by random disturbance and the agents’ voluntary control. To reduce the compensation risk, the authors first present an optimal incentive/control contract problem for the aggregator's compensation. The problem is usually regarded as a principal-agent problem under moral hazard in contract theory. However, it is generally difficult to solve a contract problem with dynamics expressed as discrete-time simultaneous Bellman equations and a hierarchical control structure as a Stackelberg game. The authors next show that the problem can be solved by regarding it as a linear-exponential-quadratic-Gaussian dynamic game and employing a numerical optimisation technique. Due to the ex-ante appropriate payment contract, the agents select control inputs preferable for the aggregator. The effectiveness of the proposed contract mechanism is finally demonstrated through simulation.
Starting Page	594
Ending Page	601
Page Count	8
Volume Number	2
e-ISSN	25152947
Issue Number	Issue 4, Dec (2019)
Alternate Webpage(s)	https://digital-library.theiet.org/content/journals/iet-stg/2/4
Alternate Webpage(s)	https://digital-library.theiet.org/content/journals/10.1049/iet-stg.2018.0256
Journal	IET Smart Grid
Publisher	The Institution of Engineering and Technology
Publisher Date	2019-07-18
Access Restriction	Open
Rights License	Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0/)
Subject Keyword	Agents Aggregator Compensation Risk Contract Theory Contracts Control Input Defective Ancillary Services Discrete Control System Discrete Time System Discrete-time Dynamic Electric Power Network Discrete-time Simultaneous Bellman Equation Ex-ante Appropriate Payment Contract Game Theory Hierarchical Control Structure Incentive Scheme Individual Decision–making Linear-exponential-quadratic-Gaussian Dynamic Game Moral Hazard Optimal Agency Contract Optimal Contract Mechanism Optimal Control Optimisation Optimisation Technique Principal-agent Problem Social Welfare Statistics System Operator Utility
Content Type	Text
Resource Type	Article

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1	Ministry of Education (GoI), Department of Higher Education	Sanctioning Authority	https://www.education.gov.in/ict-initiatives
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3	National Digital Library of India Office, Indian Institute of Technology Kharagpur	The administrative and infrastructural headquarters of the project	Dr. B. Sutradhar bsutra@ndl.gov.in
4	Project PI / Joint PI	Principal Investigator and Joint Principal Investigators of the project	Dr. B. Sutradhar bsutra@ndl.gov.in Prof. Saswat Chakrabarti will be added soon
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