This paper considers firms’ incentives to invest in local and flexible resources when demand is uncertain and correlated. I find that market power of the monopolist providing flexible resources leads to underinvestment in the flexible resource and overinvestment in the local resource. Moreover, investment responds to demand correlation differently under monopoly and social optimum. This implies...

The most formidable challenge in assembling a Smart Grid is the integration of a high penetration of renewables. Demand Response, a largely promising concept, is increasingly discussed as a means to cope with the intermittent and uncertain renewables. In this paper, we propose a dynamic market mechanism that reaches the market equilibrium through continuous negotiations between key market playe...

We analyze dynamic allocations in a model with uncertain demand and with unobservable arrivals. The planner learns along the way about future demand, but strategic agents, who anticipate this behavior, strategically choose the timing of their arrivals. We examine the conditions under which the complete information, dynamically efficient allocation is implementable, and characterize the necessar...