Interpreting and extending conventional cost allocation methods for multipurpose reservoir developments by use of cooperative game theory

Abstract

In multipurpose reservoir developments, conflicts arise when joint costs must be allocated amongst uses (such as flood control, municipal and industrial water supply, irrigation and hydroelectric power) participating in the development. To resolve such conflicts, called the cost allocation problem, the allocation should satisfy the conditions of economical efficiency and fairness among the participating uses. In addition, it is necessary for a cost allocation method to be as simple as possible in terms of application. Namely, ease of use and ease of calculation are considered significant and are the basis for conventional allocation methods. In this paper, we claim that the conventional cost allocation methods should continue to be used in practice. However, they should be reexamined by use of cooperative game theory as a measure to analyze the extent to which the methods hold logical reasoning. Specifically, we note the presence of coincidence between the allocation by the conventional cost allocation methods and by game-theory based-methods. As long as coincidence holds, the conventional methods are endorsed on the grounds of its fairness and equity by the corresponding game theory.