CDF-based Reliability Insurance Contracts Considering Free-riding

Due to the inflexibility of electrical grids, most utilities cannot differentiate the reliability services at the household level and so the public good aspects of the reliability services are emphasized. In such circumstances, selfish consumers can misrepresent their willingness to pay for the reliability services and benefit from their neighbors' choices (i.e. free-ride on the reliable services provided for their neighbors). Free-riding may lead to the underinvestment in the grid. In this paper, primarily, CDF-based insurance contracts are designed and in following, a method for solving the free-riding problem is presented.