# Signalling for Electricity Demand Response: When is Truth Telling Optimal?

## TL;DR

This paper models demand response programs using Bayesian persuasion to analyze when truthful information sharing by TSOs is optimal, revealing conditions under which pricing influences honesty.

## Contribution

It introduces a Bayesian persuasion framework to analyze demand response, highlighting how electricity pricing affects the TSO's incentive to disclose truthful information.

## Key findings

- Truth-telling is optimal when electricity is priced at marginal cost.
- Overpricing leads to no information being disclosed.
- Pricing strategies influence the honesty of demand response signals.

## Abstract

Utilities and transmission system operators (TSO) around the world implement demand response programs for reducing electricity consumption by sending information on the state of balance between supply demand to end-use consumers. We construct a Bayesian persuasion model to analyse such demand response programs. Using a simple model consisting of two time steps for contract signing and invoking, we analyse the relation between the pricing of electricity and the incentives of the TSO to garble information about the true state of the generation. We show that if the electricity is priced at its marginal cost of production, the TSO has no incentive to lie and always tells the truth. On the other hand, we provide conditions where overpricing of electricity leads the TSO to provide no information to the consumer.