A Faithful Distributed Mechanism for Demand Response Aggregation

A faithful distributed mechanism is proposed in this paper for sharing the cost of electricity among a large number of strategic and distributed household agents that have private information, and discrete and continuous energy levels. In contrast to mechanisms in prior works, which charge the agents based on their day-ahead allocation, the proposed mechanism charges the agents based on their day-ahead allocation and their actual consumption. The mechanism is proven to be asymptotically dominant strategy incentive compatible, weakly budget balanced, and fair in charging the agents. However, the proposed mechanism's payment function, which requires computing a marginal allocation problem for each agent, renders the mechanism intractable for a large number of household agents if it is computed centrally. Thus, a distributed implementation of the mechanism is proposed, in which the agents share the computational burden with the aggregator. The distributed implementation is based on a penalty/reward scheme inspired by the prisoner's dilemma that brings faithful computation to a dominant strategy equilibrium.