Cooperative Game Theory and its Application to Natural, Environmental, and Water Resource Issues : 3. Application to Water Resources

Abstract

This paper reviews various applications of cooperative game theory (CGT) to issues of water resources. With an increase in the competition over various water resources, the incidents of disputes have been in the center of allocation agreements. The paper reviews the cases of various water uses, such as multi-objective water projects, irrigation, groundwater, hydropower, urban water supply, wastewater, and transboundary water disputes. In addition to providing examples of cooperative solutions to allocation problems, the conclusion from this review suggests that cooperation over scarce water resources is possible under a variety of physical conditions and institutional arrangements. In particular, the various approaches for cost sharing and for allocation of physical water infrastructure and flow can serve as a basis for stable and efficient agreement, such that long-term investments in water projects are profitable and sustainable. The latter point is especially important, given recent developments in water policy in various countries and regional institutions such as the European Union (Water Framework Directive), calling for full cost recovery of investments and operation and maintenance in water projects. The CGT approaches discussed and demonstrated in this paper can provide a solid basis for finding possible and stable cost-sharing arrangements.