Abstract
Often enough, social welfare and private benefit do not align for quasi-public goods/services. The inter-basin water transfer (IBWT) project provides a vivid example of this. In this paper, following the game-theoretical approach, we derive an optimal Ramsey pricing scheme to resolve these conflicts. We try to compare traditional supply chain management models with an optimal Ramsey pricing scheme, with an enforcement of coordination among firms. Using simulation techniques, we compute numerical estimates under three regimes: a standard equilibrium decision framework, a coordination decision model and a coordinated Ramsey pricing scheme. Our results show the relative welfare impact of different settings, revealing that the optimal pricing scheme based on the two-part tariff structure cannot only improve social welfare, but also ensure a target profit for participating firms. Lastly, our findings have strong policy implications for the government with profit regulation and the control of water resources.
Highlights
The inter-basin water transfer (IBWT) project involves using artificial methods to divert water from the surplus areas to the deficit regions in order to promote the overall economic and social development of a country
The less the water delivery loss rate is, the more profits are gained by the IBWT supply chain and its members, and the bigger consumer surplus and social welfare are achieved by the government
Owing to the quasi-public-goods characteristics of the water resources and the quasi-public-welfare characteristics of IBWT projects, both social welfare and economic benefits should be taken into account in the operations management of the IBWT supply chain
Summary
The inter-basin water transfer (IBWT) project involves using artificial methods to divert water from the surplus areas to the deficit regions in order to promote the overall economic and social development of a country. Res. Public Health 2019, 16, 3651 operated under the supervision of Spain Ministry for the Ecological Transition, and the SNWD project is operated under the supervision of the China Ministry of Water Resources. Operators typically focus only on profit maximization if there is no government intervention Government regulations such as controls on price, quantity, and quality are critical to keep up the social welfare. Various kinds of quasi-public goods/services have been priced by governments using the Ramsey scheme to ensure social welfare maximization. Our contribution of this paper is to investigate and establish the equilibrium and coordination strategies for an IBWT supply chain with/without Ramsey pricing.
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