Equilibria in markets with non-convexitiesand a solution to the missing money phenomenonin energy markets

In this paper we address the issue of finding efficient partial equilibria in markets with nonconvexities.This is a problem that has intrigued generation of economists. Beside its theoreticalimportance this issue is fundamental in energy markets which do not give the right price signalsand incentives to maintain existing and invest in new generating capacity. By considering acompetitive environment in which consumers maximize utility independently of other agentsactions while suppliers are profit maximizers given other market agents actions, we are able tofind efficient prices in markets with non-convexities. Based on this result we propose a design foran energy-only market able to give investors the correct price signals.....