"Market Systems" Models and Energy Policy Analysis

October 17, 2012 - 12:00pm
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Many aspects of energy policy in the US intend to influence both "demand-side" (consumer) and "supply-side" (producer) behavior. Analysis for such policies, however, rarely takes into account important complexities related to consumer behavior, firm behavior, competition, and uncertainty that can ultimately limit policy effectiveness. This talk will review the gap between policy analysis and what we know about market behavior. Two elements will serve as an element of focus for detailed discussion: First, game-theoretic "Market Systems" models of product design research have adopted game-theoretic models from economics to integrate market phenomena that result from design decisions into the analytic design optimization process. While Market Systems models could help guide policy decisions, numerical methods capable of handling real-scale models are still under development. Second, consumers aren't utility maximizers, or particularly "rational" with respect to the financial benefits of investments in energy efficiency. The emerging science of non-compensatory decision processes offers a frame from which to approach real human choices in a way that could aid both regulated firms and regulators. We will discuss progress in dealing with one non-compensatory process - consideration - that threatens to impede efforts to achieve national fuel consumption and greenhouse gas emissions reduction goals.

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