Dynamic management of water transfer between two interconnected river basins

Abstract

This paper analyzes the dynamic interaction between two regions with interconnected river basins. Precipitation is higher in one river-basin while water productivity is higher in the other. Water transfer increases productivity in the recipient basin, but may cause environmental damage in the donor basin. The recipient faces a trade-off between paying the price of the water transfer, or investing in alternative water supplies to achieve a higher usable water capacity. We analyze the design of this transfer using a dynamic modeling approach, which relies on non-cooperative game theory, and compare solutions with different information structure (Nash open-loop, Nash feedback, Stackelberg) with the social optimum. We first assume that the equilibrium between supply and demand determines the optimal transfer price and amount. We show that, contrary to the static case, in a realistic dynamic setting in which the recipient uses a feedback information structure the social optimum will not emerge as the equilibrium solution. We then study different leadership situations in the water market and observe that the transfer amount decreases towards a long-run value lower than the transfer under perfect competition, which in turn lays below the social optimum. In consequence, the water in the donor's river-basin river converges to a better quality in the presence of market power. Finally, we numerically compare our results to the Tagus-Segura water transfer described in Ballestero (2004). Welfare gains are compared for the different scenarios. We show that in all dynamic settings, the longrun transfer amount is lower than in Ballestero's static model. Further, we show that the long-run price settles at a lower level than in Ballestero's model, but is still higher than the average cost-based price determined by the Spanish government.

Economic Feasibility of Underwater Adduction of Rivers for Metropolises in Semiarid Coastal Environments: Case Studies

“…We calculated the Payback (Capital Return Period) [60] with the following model: (21) where Rt is the revenue at time t; Et is the cost at time t; I is investments; and n is the time in years.…”

“…The transfer of inter-basin water is when rainfall is higher in a watershed and the need is greater in another; in this context a solution is interconnection between basins, however, this can cause environmental damage to the involved basin [21] as any inter-basin transfer generates complex phenomena (physical, chemical, biological, and hydrological) in these changed systems [22]. The transfer of inter-basin water is designed to ensure access to this feature through artificial water transport to locations where people need it; this action is typically an engineering measure oriented to meet the demand and causes major social challenges [23].…”

Promotion of cooperation when benefits come in the future: A water transfer case

“…For the particular example of the Tagus-Segura transfer, Ballestero (2004) presents a static demand-supply model, later extended to a dynamic setting in Cabo et al (2014). The latter studies the interaction between a donor and a recipient region as a non-cooperative differential game, which defines the water market as a bilateral monopoly.…”

“…The two countries jointly invest to build the canal within a first period, whose length will be determined by the intensity of the investment paths. 6 The cooperative objective function includes current investment costs as well as future benefits; the latter in the form of a scrap function defined as the sum of the value functions of the two players in the subsequent game. Within this subsequent period of infinite length the canal is operating and the two countries play a non-cooperative differential game, as in Cabo et al (2014).…”

Impact of Inter‐Basin Water Transfer Projects on Regional Ecological Security from a Telecoupling Perspective

“…IBWTPs are closely related to conditions in aquatic environments and ecosystems, and their construction and operation unavoidably influence the water environment and aquatic ecosystem [14][15][16]. According to the methods and measures of environmental impact assessment and ecological impact assessment, such assessment of IBWTPs includes analysis and prediction of ecosystem impact for each process and section of an IBWTP [17,18]. The advantages of these methods are that the direct and short-term impacts on the ecosystems caused by project construction and operation can easily be recognized, and that predictions of the successional tendency of the ecosystems could reasonably be addressed.…”