Comput Manag Sci DOI 10.1007/s10287-015-0247-9 ORIGINAL PAPER Economics of collective monitoring: a study of environmentally constrained electricity generators J. Contreras 1 · J. B. Krawczyk 2 · J. Zuccollo 3 Received: 26 March 2015 / Accepted: 8 December 2015 © Springer-Verlag Berlin Heidelberg 2015 Abstract This paper investigates the costs of monitoring of a distributed multi-agent economic activity in the presence of constraints on the agents’ joint outputs. If the regulator monitors agents individually she calculates each agent’s optimal contribu- tion to the constrains by solving a constrained welfare-maximisation problem. This will maximise welfare but may be expensive because monitoring cost rises with the number of agents. Alternatively, the regulator could monitor agents collectively, using a detector, or detectors, to observe if each constraint is jointly satisfied. This will ease implementation cost, but lower welfare. We define the welfare difference between each regime of monitoring for a fairly inclusive electricity generation model and for- mulate some predictions. The behaviour of two generators in a coupled-constrained, three-node case study reproduces these predictions. We find that the welfare loss from collective monitoring can be small if the constraints are tight. We also learn that, under either regime, the imposition of transmission and environmental restrictions may ben- efit the less efficient generator and shift surplus share towards the emitters, decreasing consumer surplus. Keywords Coupled-constraints games · Generalised Nash equilibrium · Deregulated electric industry · Pollution constraints · Policy analysis Mathematics Subject Classification 91B32 · 91B52 · 91B76 B J. Contreras javier.contreras@uclm.es 1 E.T.S. de Ingenieros Industriales, Universidad de Castilla–La Mancha, 13071 Ciudad Real, Spain 2 Victoria University ofWellington, Wellington, New Zealand 3 HEFCE, Bristol, UK 123