A principal–agent problem with heterogeneous demand distributions for a carbon capture and storage system

W. Cai, D. I. Singham

Research output: Contribution to journalArticlepeer-review

8 Scopus citations

Abstract

Mechanism design problems optimize contract offerings from a principal to different types of agents who have private information about their demands for a product or a service. We study the implications of uncertainty in agents’ demands on the principal's contracts. Specifically, we consider the setting where agents’ demands follow heterogeneous distributions and the principal offers a menu of contracts stipulating quantities and transfer payments for each demand distribution. We present analytical solutions for the special case when there are two distributions each taking two discrete values, as well as a method for deriving analytical solutions from numerical solutions. We describe one application of the model in carbon capture and storage systems to demonstrate various types of optimal solutions and to obtain managerial insights.

Original languageEnglish (US)
Pages (from-to)239-256
Number of pages18
JournalEuropean Journal of Operational Research
Volume264
Issue number1
DOIs
StatePublished - Jan 1 2018

All Science Journal Classification (ASJC) codes

  • Computer Science(all)
  • Modeling and Simulation
  • Management Science and Operations Research
  • Information Systems and Management

Keywords

  • Carbon capture and storage (CCS)
  • Game theory
  • Heterogeneous demands
  • Mechanism design
  • Uncertainty

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