Risk Control of Providing a Kind of Quasi-public Goods under China's Current Pricing Mechanism–Case of Energy Industry

Abstract

This article presents a robust optimization formulation for dealing with production cost and government price uncertainty in a kind of quasi-public goods market scenario. Participants in the market face price administrated by government but uncertain production costs, at the same time. We show that the robust optimization formulation, based on a nominal problem, may be articulated as a variational inequality involving control and state variables. This convenient approach may be applied for computation of optimal solutions, which can help manufactories dramatically and rapidly alter production and distribution schedules, in order to compete in the market successfully.