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Game Theory Approach for Pricing of Bulk Water Supply System

Chongwon Kim 1 Han, Dong-Geun 2

1국토연구원
2영남대학교

Accredited

ABSTRACT

This study examines strategic behaviors between local government and the Korea Water Resource Corporation(KWRC, hereafter) in making decisions about the investment on local government's own water-producing facilities, and in KWRC's setting price of the water that sells to the local government. Our theoretic model shows that in a non-cooperative game situation, social inefficiency could occur because the local government has incentives to invest too much on its own water-producing facilities. The model also demonstrates that mutually cooperative actions between the two parties could lead to a lower price of water, and at the same time. could avoid the socially wasteful over-investment in water-producing facilities by the local government. Moreover our extended model, a sequential game, shows that the social losses could worsen when local government takes the role of the first mover in the game. The results of the study suggest that central government needs to step in to promote coordination between the interests of the local government and KWRC, in order to improve social efficiency.

Citation status

* References for papers published after 2022 are currently being built.