Abstract
Under the current administrative system (AS) in China, the water resources governor allocates limited water resources to several users to realize the utility of water resources, leading to a principal–agent problem. The governor (referred to as the principal and she) wishes to maximize water resource allocation efficiency, while each user (referred to as the agent and he) only wishes to maximize his own quota. In addition, the governor cannot know water demand information exactly since it is the water users’ private information. Hence, this paper builds an ex ante improved bankruptcy allocation rule and an ex post verification and reward mechanism to improve water allocation efficiency from the governor’s perspective. In this mechanism, the governor allocates water among users based on an improved bankruptcy rule before the water is used up, verifies users’ information by various approaches, and poses a negative reward to them if their information is found to be false after the water is used up. Then, this mechanism is applied to Huangbai River Basin. Research results show that the improved allocation rule could motivate users to report demand information more honestly, and ex post verification could motivate water users to further report their true information, which, as a result, could improve the water allocation efficiency. Furthermore, this mechanism could be applied to the allocation of other resources.
Highlights
Water resources are one of the most basic and important elements for human beings
Research results show that the improved allocation rule could motivate users to report demand information more honestly, and ex post verification could motivate water users to further report their true information, which, as a result, could improve the water allocation efficiency
This paper explores the improvement of water resource allocation efficiency by taking into account the asymmetric information and conflicts of interest between the governor and several users
Summary
Water resources are one of the most basic and important elements for human beings. Global water demand has increased significantly over the past few decades due to population growth, climate change, and economic development, leading to a severe water crisis all over the world, especially in China, where water resources are unevenly distributed in spatial and temporal dimensions. Ex post verification and reward could motivate water users to report their true information, which could address the problem of information asymmetry and improve water resource allocation efficiency further. This mechanism could help the governor decrease the degree of information asymmetry and improve water allocation efficiency. Given water allocation inefficiency caused by asymmetric information, the governor uses two methods to motivate each user to report true information She adopts the improved bankruptcy theory to allocate water resources, so that, instead of reporting water demand at will, the user’s reported demand matches with his water resource contribution rate and GDP contribution rate.
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