Game Theory Applications in Equilibrium Water Pricing of Multiple Regional Sources and Users

Abstract

China has been facing a contradiction between its water supply and demand for a long time, and it is urgent that it builds a “water-saving society”. Previous research on water pricing mainly focused on the policy level, only considering the supply and demand sides and ignoring the participation of local governments. Due to the inconsistent approval mechanisms, different times of cost formation, and lack of a scientific pricing relationship between multiple water sources and multiple users, with the current water pricing in China, it is difficult to solve the complex problem of water resource allocation. This study aimed to promote the qualitative supply of water and the reuse of reclaimed water, achieve a high-quality and low-cost water supply, and explore the role of water-pricing mechanisms in the regulation of multi-source water supply configurations. The mechanism of regulation is constructed for the complex, multi-source, multi-user water resource system, and a three-party game model is established among local governments, water supply enterprises, and water users. A reasonable pricing system with a rational price relationship is obtained, and Pinghu City in Zhejiang Province is taken as the research area. The prices of the external water supply to residential users, non-resident users, and special users are 4.48 CNY/m3, 6.28 CNY/m3, and 7.12 CNY/m3. The external supply prices for resident users, non-resident users, and special users are 3.81 CNY/m3, 5.25 CNY/m3, and 6.05 CNY/m3. The external supply price for non-resident users is 2.62 CNY/m3 for reclaimed water. The results of the study showed that when the government’s contribution did not exceed the amount that it would have been without the inclusion of recycled water and the annual payment of water users did not exceed their ability to pay, the income of water suppliers increased by 69%. The three balanced objectives of rational water resource configuration by the local government, reasonable profit for the water supply enterprise, and reasonable payment by water users have been achieved. This study provides theoretical and methodological support for the implementation of water pricing for multi-source and multi-user water supplies in water-scarce areas.