A GAME THEORY APPROACH TO DECIDING WHO WILL SUPPLY INSTREAM FLOW WATER¹

Abstract

The resource management problem for the Middle Platte ecosystem is the insufficient water available to meet both instream ecological demands and out-of-stream economic needs. This problem of multiple interest groups competing for a limited resource is compounded by sharp disagreement in the scientific community over endangered species' needs for instream flows. In this study, game theory was used to address one dimension of this resource management problem. A sequential auction with repeated bidding was used to determine how much instream flow water each of three states -Colorado, Nebraska, and Wyoming -will provide and at what price. The results suggest that the use of auction mechanisms can improve the prospects for reaching a multi-state agreement on who will supply instream flow water, if the auction is structured to discourage misrepresentation of costs and if political compensation is allowed.

Applications of Negotiation Theory to Water Issues

“…A similar effect to the introduction of political compensation payment in the second price auction described by Supalla et al (2002) can be obtained by linking water…”

Fair Agreements for Sharing International Rivers with Multiple Springs and Externalities

“…International water law, as laid down in the Helsinki Rules of 1966 and the UN Convention on the Law of the Non-Navigational Uses of International Watercourses of 1997, does neither recognize claims by upstream countries on the water caught on its territory, nor downstream nations claims of historical rights, which makes the application of negotiation theory even more difficult. The international river problem is studied in for instance Dinar (1995, 2001), Bennett, Ragland and Yolles (1998), Ambec and Sprumont (2002), Supalla et al (2002) and Ambec and Ehlers (2008).…”

Applications Of Negotiation Theory To Water Issues

“…It would be interesting to extend the model proposed by Supalla et al (2002) to include negotiation over the quantity of water to be released for instream services, rather than only to determine which states should supply it, and at what cost. A two-level game, similar in concept to the one described in Section 3.4, could provide the required tools.…”

“…Similarly, Supalla et al (2002) investigate a scheme in which a second price auction is implemented in order to establish the contribution of each user group to a fixed amount of water for instream services, and how payments can be apportioned, to ensure the agreement is enforceable.…”

“…A different approach is adopted by Supalla et al (2002), who apply auction theory to determine the shares of water for environmental services in the Platte river to be provided by the three states sharing the river.…”