Inter-Basin Water Transfer Supply Chain Coordination with Ramsey Pricing

Often enough, social welfare and private benefit do not align for quasi-public goods/services. The inter-basin water transfer (IBWT) project provides a vivid example of this. In this paper, following the game-theoretical approach, we derive an optimal Ramsey pricing scheme to resolve these conflicts...

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Bibliographic Details
Published in:	International journal of environmental research and public health 2019-09, Vol.16 (19), p.3651
Main Authors:	Chen, Zhisong, Cheung, Keith C K, Tan, Manyi
Format:	Article
Language:	eng
Subjects:	Airports Contracts Cooperation Cost recovery Costs and Cost Analysis Decision Making Delivery services Distributors Economic models Game Theory Literature reviews Operations management Prices Pricing policies Profits Reclamation Researchers Social Welfare Supervision Suppliers Supply chain management Supply chains Tariffs Theory Water Resources Water shortages Water Supply Water transfer
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Summary:	Often enough, social welfare and private benefit do not align for quasi-public goods/services. The inter-basin water transfer (IBWT) project provides a vivid example of this. In this paper, following the game-theoretical approach, we derive an optimal Ramsey pricing scheme to resolve these conflicts. We try to compare traditional supply chain management models with an optimal Ramsey pricing scheme, with an enforcement of coordination among firms. Using simulation techniques, we compute numerical estimates under three regimes: a standard equilibrium decision framework, a coordination decision model and a coordinated Ramsey pricing scheme. Our results show the relative welfare impact of different settings, revealing that the optimal pricing scheme based on the two-part tariff structure cannot only improve social welfare, but also ensure a target profit for participating firms. Lastly, our findings have strong policy implications for the government with profit regulation and the control of water resources.
ISSN:	1660-4601 1661-7827 1660-4601