Local water market development based on multi-agent based simulation approach

Abstract

Water trade has been recognized as a tool to improve water efficiency and reduce negative impacts of water scarcity. However, water trade success depends on regional settings, institutional framework, trade mechanism and water consumer behavior. This research presents an agent based approach to simulate the behavior of farmers towards the local water market formation policy and measures its feedback in the hydrological-agricultural-economic system. Accordingly, the farmers in each region were represented as an agricultural agent while the environment with which farmers interact was partitioned into three parts: physical environment, economic environment and social environment. The behavior of agricultural agents was simulated based on linked mathematical programming and a multi-objective optimization model, coupled with Borda count method to resolve conflicts among agents. To evaluate the proposed method in a case study in central Iran, namely Najafabad hydrological unit, 16 scenarios, including black market scenario, were developed and further simulated. The results showed that the equilibrium water price was strongly influenced by water supply and demand in the system. The average equilibrium price under normal condition was equal to 3 cents per cubic meter. This is while if permits were to be reduced in accordance with aquifer recovery policy (both reducing supply and increasing demand), the average equilibrium price increased by about 3.5 cents. Conversely, following the scenario of imposing fines (penalties) for over-exploitation (increasing supply and reducing demand), the equilibrium price dropped to 2.5 cents.