Testing Institutional Arrangements Via Agent-BasedModeling: A U.S. Electricity Market Example

Many critical goods and services in modern-day economies are producedand distributed through complex institutional arrangements. Agent-based computationaleconomics (ACE) modeling tools are capable of handling this degree of complexity.In concrete support of this claim, this study presents an ACE test bed designedto permit the exploratory study of restructured U.S. wholesale power marketswith transmission grid congestion managed by locational marginal prices (LMPs).Illustrative findings are presented showing how spatial LMP cross-correlation patternsvary systematically in response to changes in the price responsiveness ofwholesale power demand when wholesale power sellers have learning capabilities.These findings highlight several distinctive features of ACE modeling: namely, anemphasis on process rather than on equilibrium; an ability to capture complicatedstructural, institutional, and behavioral real-world aspects (micro-validation); andan ability to study the effects of changes in these aspects on spatial and temporaloutcome distributions.[...]