Smart Markets for Black-box Capacity Allocation

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The term smart market refers to a market design in which clearing must be implemented by solving an optimization problem satisfying technical constraints that cannot otherwise be met via more traditional market structures (e.g. bilateral trading). All trading in a smart market is intermediated by a market manager in charge of clearing. Examples include electricity markets (where network capacity constraints must be satisfied while taking into account power flow) and spectrum auctions for allocating channels (where combinatorial optimization is needed to identify an efficient allocation). This project addresses the problem of designing smart markets when the solution of a non-trivial computational model has to be consulted to determine the feasibility of a given allocation profile. Since such a model is not transparent to the market manager, it is often referred to as a "black-box" model. As an example, the project will focus on the allocation of spectrum access under signaling technologies other than frequency division, which is an instance of this problem because a precise determination of communication capacity can only be obtained by consulting black-box models that take into account the effects of interference amongst users.This project will focus on the design of smart markets to ensure the efficient allocation of black-box capacity under incomplete information regarding the users' willingness to pay for capacity. The designs considered are iterative in nature. The idea is to allow (at each iteration) a form of self-scheduling by users onto available resources followed by a black-box evaluation of excess capacity, which in turn informs price updates. A key design novelty pertains to the use of different time-scales for pricing (fast) vs. capacity allocation (slow) adjustments. Personalized incentives for each user (in the forms of additional payments or transfers) guarantee that it is a dominant strategy for users to truthfully report their demand throughout the process. Several additional research directions including noisy black-box model and non-convex feasible regions will be considered. Additionally, the application of the smart market designs to electricity markets with high levels of renewable capacity will be considered. If successful, the project will contribute to ensuring that the market dispatch of available resources meets a certain reliability target with highly intermittent nature of renewable output.This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.