Game Theory Analysis of the Virtual Water Strategy

Abstract

The virtual water strategy (VWS) provides an alternative modelling method to transport virtual water (VW) from water-rich regions to areas with water-scarce resources. This strategy is designed to balance the differences of regional water supplies, improve water-use efficiency, and ensure the environmental sustainability of water resources. However, the practical implementation of VWS still faces resistance due to a poor understanding of VWS and minimal pressure to make hard decisions about sharing water resources. Therefore, it is important to study the decision-making mechanism and behavioral motivation in the implementation process of VWS. Game theory has been extensively applied in economics, political science and natural science to predict and understand decision outcomes. Cost-benefit analysis and behavior incentives using VWS can also be accessed using game theory with a symmetric take out modelling approach. In this approach, efficient and acceptable methods to construct a VWS-based framework of VW trading can implemented. This study builds a semi-quantitative game model to analyze acceptance paradigms for economic development and trade patterns in sharing water. The optional strategies and relevant payoffs are analyzed to explore factors affecting the implementation of VWS. The results show that an equilibrium in which all areas share VWS is the optimal result. However, egoistic motivations, political pressures and risk of loss hinders decision making. Thus, to achieve mutual benefits within an interregional VWS framework, some external interventions are required. Interventions can include: reasonable incentive mechanisms for rewards or punishments, improving technologies and efficiency related to VW production, and promoting long-term trade cooperation between the regions. The uneven distribution and availability of freshwater globally dictates that the sharing and availability of water into the future will require VWS modelling and the political willingness to share resources.