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Allocation of treated wastewater among competitive farmers under asymmetric information
Author(s) -
Axelrad Gilad,
Feinerman Eli
Publication year - 2010
Publication title -
water resources research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.863
H-Index - 217
eISSN - 1944-7973
pISSN - 0043-1397
DOI - 10.1029/2008wr007687
Subject(s) - wastewater , reservation , profit (economics) , irrigation , business , payment , water resource management , agriculture , arid , environmental economics , natural resource economics , economics , environmental science , environmental engineering , microeconomics , computer science , geography , finance , ecology , archaeology , computer network , biology , paleontology
Following suitable treatment, municipal wastewater can be used for agricultural irrigation; the potential benefit to the agricultural sector is especially significant in arid and semiarid regions, where fresh water is scarce. The analysis focuses on a region which consists of a principal (a wastewater “producer” (a city)), and two competitive agents (water users (two groups of farmers' associations)), who make decisions under conditions of asymmetric information. First, we develop an optimization model aimed at maximizing the principal's profits from conveying treated wastewater without damaging the farmers' reservation utilities or profits. The analysis determines the treated‐wastewater allocation, income transfers, and profit allocation among the three assumed economic entities. Contracts composed of transfer payment–wastewater combinations are studied in a mechanism design setting in which the city has incomplete information on the farmers' demand for treated wastewater. The theoretical analysis is applied to the situation in the Sharon region of Israel. The empirical results show that regional cooperation is profitable for all of the involved economic entities.