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New approach to water allocation under uncertainty
Author(s) -
Thomas George,
Whinston Andrew,
Wright Gordon
Publication year - 1972
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/wr008i005p01151
Subject(s) - pareto principle , hydroelectricity , recreation , profit (economics) , stochastic programming , hydropower , water supply , economics , water resource management , microeconomics , operations research , mathematical optimization , environmental economics , environmental science , environmental engineering , mathematics , operations management , engineering , political science , law , electrical engineering
This paper discusses some new water allocation policies that maximize expected profit when the central authority controlling a reservoir faces deterministic demand functions and a stochastic supply of water. The demand functions are distinguished by price and a guaranteed probability of receiving water. A penalty cost is incurred if the guaranteed probability of delivery is not met by the reservoir manager. The demand functions could represent, for example, consumers of water for the purposes of hydroelectric power, recreation, irrigation, and dilution for pollution control. The optimal contract policies (optimal prices and associated optimal guaranteed delivery probabilities) are characterized. The analysis shows that the use of price discrimination may be superior (Pareto's law) to a uniform contract for all consumers of water. The results are illustrated by a stochastic model of two classes of water consumers.