A Mechanism for Cooperative Demand-Side Management

Demand-side management (DSM) is an important theme in studies of 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 power consumption and encourages prosocial behavior, such as expressing flexibility in one's power consumption and reporting preferences truthfully. The objective is to provide a tractable, budget-balanced mechanism that promotes truth-telling 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.