A Mechanism for Cooperative Demand-Side Management
Guangchao Yuan, Chung-Wei Hang, Michael Huhns and Munindar Singh
Microsoft, IBM, University of South Carolina, North Carolina State University

Demand-side management (DSM) is an important theme in the Smart Grid and offers the possibility of leveling power consumption with its attendant benefits of reducing capital expenses. This paper develops an algorithmic mechanism that reduces peak total consumption and encourages prosocial behavior, such as expressing flexibility in ones power consumption and reporting preferences truthfully. Our objective is to provide a tractable, budget-balanced mechanism that promotes truthtelling from households. The resulting mechanism is theoretically and empirically proven to be ex ante budget-balanced, weakly Pareto-efficient, and weakly Bayesian incentive-compatible. A simulation study verifies that the mechanism could largely reduce the computational complexity that the optimal allocation requires, while maintaining approximately the same performance. A user study with 20 subjects further shows the effectiveness of the mechanism in preventing participants from defecting and incentivizing them to reveal flexible preferences.