Inter-Basin Water Transfer Supply Chain Coordination with Ramsey Pricing

Area of Science:

• Environmental Economics
• Game Theory
• Operations Research

Background:

• Social welfare and private benefits often diverge for quasi-public goods.
• Inter-basin water transfer (IBWT) projects exemplify this conflict.
• Traditional supply chain models may not adequately address these externalities.

Purpose of the Study:

• To derive an optimal Ramsey pricing scheme for IBWT projects.
• To compare traditional supply chain models with coordinated Ramsey pricing.
• To analyze the welfare impact of different decision-making frameworks.

Main Methods:

• Game-theoretical approach to derive the pricing scheme.
• Simulation techniques to compute numerical estimates.
• Comparison of three regimes: standard equilibrium, coordination model, and coordinated Ramsey pricing.

Main Results:

• The optimal Ramsey pricing scheme, using a two-part tariff, improves social welfare.
• This pricing strategy ensures target profits for participating firms.
• The coordinated Ramsey pricing model demonstrates superior welfare outcomes compared to standard models.

Conclusions:

• An optimal Ramsey pricing scheme can effectively align social welfare and private benefits in IBWT projects.
• The findings provide a framework for government profit regulation and water resource control.
• Coordinated decision-making and pricing are crucial for managing quasi-public goods efficiently.