The Impact of Stealthy Attacks on Smart Grid Performance: Tradeoffs and Implications

The smart grid is envisioned to significantly enhance the efficiency of energy consumption, by utilizing two-way communication channels between consumers and operators. For example, operators can opportunistically leverage the delay tolerance of energy demands in order to balance the energy load over time, and hence, reduce the total operational cost. This opportunity, however, comes with security threats, as the grid becomes more vulnerable to cyber-attacks. In this paper, we study the impact of such malicious cyber-attacks on the energy efficiency of the grid in a simplified setup. More precisely, we consider a simple model where the energy demands of the smart grid consumers are intercepted and altered by an active attacker before they arrive at the operator, who is equipped with limited intrusion detection capabilities. We formulate the resulting optimization problems faced by the operator and the attacker and propose several scheduling and attack strategies for both parties. Interestingly, our results show that, as opposed to facilitating cost reduction in the smart grid, increasing the delay tolerance of the energy demands potentially allows the attacker to force increased costs on the system. This highlights the need for carefully constructed and robust intrusion detection mechanisms at the operator.Comment: Technical report - this work was accepted to IEEE Transactions on Control of Network Systems, 2016. arXiv admin note: substantial text overlap with arXiv:1209.176

Shareholder-efficient production plans in a multi-period economy

We propose an objective for the firm in a general model of production economies extending over time under uncertainty and with incomplete markets. Trading in commodities and shares of stock occurs sequentially on spot markets at all date-events. We derive the objective of the firm from the assumption of initial-shareholders efficiency. Each shareholder is assumed to communicate to the firm her marginal valuation of profits all date events (expressed in terms of initial resources). In defining her own marginal valuation of the firm's profits, a shareholder will take two elements into consideration. To evaluate the direct impact of a change in dividends the shareholder uses her own vector of marginal rates of substitution for revenue across date-events. In addition, the shareholder will take into account the impact of future dividends on the firm's stock price when she trades shares. To predict the effect on the stock price, she uses a (possibly different) state price process, her price theory. The only restriction that we impose on consumers' price theories is that they should be compatible with the observed equilibrium : given the equilibrium prices and production plans, a price theory must satisfy a no-arbitrage condition. The firm computes its own shadow prices for profits at all date-events by simply adding up the marginal valuations of all its initial shareholders. We prove existence of an equilibrium.Incomplete markets, shareholders, price theories, firm's objective.

Shareholder-efficient production plans in multi-period economy

We propose an objective for the firm in a general model of production economies extending over time under uncertainty and with incomplete markets. Trading in commodities and shares of stock occurs sequentially on spot markets at all date-events. We derive the objective of the firm from the assumption of initial-shareholders efficiency. Each shareholder is assumed to commnicate to the firm her marginal valuation of profits at all date events (expressed in terms of initial resources). In defining her own marginal valuation of the firm’s profits, a shareholder will take two elements into consideration. To evaluate the direct impact of a change in dividends the shareholder uses her own vector of marginal rates of substitution for revenue across date-events. In addition, the shareholder will take into account the impact of future dividends on the firm’s stock price when she trades shares. To predict the effect on the stock price, she uses a (possibly different) state price process, her price theory. The only restriction that we impose on consumers’ price theories is that they should be compatible with the observed equilibrium : given the equilibrium prices and production plans, a price theory must satisfy a no-arbitrage condition. The firm computes its own shadow prices for profits at all date-events by simply adding up the marginal valuations of all its initial shareholders. We prove existence of an equilibrium.

Shareholder-efficient production plans in a multi-period economy

We propose an objective for the firm in a general model of production economies extending over time under uncertainty and with incomplete markets. Trading in commodities and shares of stock occurssequentially on spot markets at all date-events. We derive the objective of the firm from the assumption of initial-shareholders efficiency.Each shareholder is assumed to communicate to the firm her marginal valuation of profits at all date events (expressed in terms of initial resources).In defining her own marginal valuation of the firm’s profits, a shareholder will take two elements into consideration. To evaluatethe direct impact of a change in dividends the shareholder uses her own vector of marginal rates of substitution for revenue across dateevents.In addition, the shareholder will take into account the impact of future dividends on the firm’s stock price when she trades shares. Topredict the effect on the stock price, she uses a (possibly different) state price process, her price theory. The only restriction that we imposeon consumers’ price theories is that they should be compatible with the observed equilibrium: given the equilibrium prices and productionplans, a price theory must satisfy a no-arbitrage condition. The firm computes its own shadow prices for profits at all date-events by simplyadding up the marginal valuations of all its initial shareholders. We prove existence of an equilibrium.

Geometrically stopped Markovian random growth processes and Pareto tails

Many empirical studies document power law behavior in size distributions of economic interest such as cities, firms, income, and wealth. One mechanism for generating such behavior combines independent and identically distributed Gaussian additive shocks to log-size with a geometric age distribution. We generalize this mechanism by allowing the shocks to be non-Gaussian (but light-tailed) and dependent upon a Markov state variable. Our main results provide sharp bounds on tail probabilities, a simple equation determining Pareto exponents, and comparative statics. We present two applications: we show that (i) the tails of the wealth distribution in a heterogeneous-agent dynamic general equilibrium model with idiosyncratic investment risk are Paretian, and (ii) a random growth model for the population dynamics of Japanese municipalities is consistent with the observed Pareto exponent but only after allowing for Markovian dynamics

How costly is sustained low inflation for the U.S. economy?

The authors study the welfare cost of inflation in a general equilibrium life-cycle model that includes households that live for many periods, production and capital, simple monetary and financial sectors, and a fairly elaborate government sector. The government’s taxation of capital income is not indexed for inflation. They find that a plausibly calibrated version of this model has a steady state that matches a variety of facts about the postwar U.S. economy. They use the model to estimate the welfare cost of permanent, policy-induced changes in the inflation rate and find that most of the costs of inflation are direct and indirect consequences of the fact that inflation increases the effective tax rate on capital income. The cost estimates are an order of magnitude larger than other estimates in the literature.Economic conditions - United States ; Inflation (Finance)

Robust Optimization for SCED in AC-HVDC Power Systems

Wind power is a clean, renewable and low-carbon resource for power generation that has received increasing attention in power systems over the last few decades. There are two main challenges associated with the large-scale integration of wind power plants in the power system: i) the intermittent nature of wind power results in prediction errors that can greatly impact the system's operational security and reliability requirements, and ii) large-scale offshore wind farms are typically located far from onshore loads and require new developments in the transmission system of power grids, e.g., realization of mixed alternating current-high voltage direct current (AC-HVDC) power systems, which will introduce new reliability requirements to the system operator. The security-constrained economic dispatch (SCED) problem deals with determining a power dispatch schedule, for all generating units, that minimizes the total operational cost, while taking into account system reliability requirements. Robust optimization (RO) has recently been used to tackle wind power uncertainty in the SCED problem. In the literature of RO, the budget of uncertainty was proposed to adjust the solution conservatism (robustness) such that higher budgets of uncertainty correspond to more conservative solutions. This thesis shows that the budget of uncertainty approach may not be meaningful for problems with RHS uncertainty since increasing the budget of uncertainty by more than a certain threshold may not always impact the level of conservatism. This thesis proposes a new tractable two-stage robust optimization model that effectively incorporates the budget of uncertainty in problems with RHS uncertainty, controls the level of conservatism, and provides meaningful insights on the trade-off between robustness and cost. Furthermore, this thesis examines the applicability of the proposed robust approach for the SCED problem in mixed AC-HVDC power systems with large integration of wind power. The proposed robust SCED model considers the impact of wind power curtailment on the operational cost and reliability requirements of the system. Extensive numerical studies are provided to demonstrate the economic and operational advantages of the proposed robust SCED model in mixed AC-HVDC systems from five aspects: the effectiveness of the budget of uncertainty, robustness against uncertainty, contribution to real-time reliability, cost efficiency, and power transfer controllability

A nonparametric method for valuing new goods

This paper presents a revealed preference method for calculating a lower bound on the virtual or reservation price of a new good and suggests a way to improve these bounds by using budget expansion paths. This allows the calculation of cost-of-living and price indices when the number of goods available changes between periods. We apply this technique to the UK National Lottery and illustrate the effects of its inclusion in measures of inflation. JEL Classification: C43, D11