A signaling game model for evaluating water allocation competitiveness with information asymmetry environment, case study: Zayandehrud River Basin, Iran

By introducing the concept of game theory, managers and policymakers in many fields have been encouraged to consider competition between stakeholders in addition to economic objectives in their planning. Following this concept, conflict resolution models have become the main concern of many studies. The usual assumption in modeling conflict is that the information is equally available among stakeholders. However in many real situations, stakeholders have asymmetric access to information. This study investigates the signaling game-based framework to understand how asymmetric information affects water allocation policies. An analysis of the strategic behavior of the Ministry of Energy (MOE) and agricultural sector (AS) in Iran's Zayandeh Rud River Basin is presented to make the study more relevant to real-world circumstances. The results show that pooling equilibrium always occurs in this basin, causing conflict. A faithful MOE is willing to send a signal of satisfaction, and the AS may cooperate with him and keep everyone happy in the basin. However, the unfaithful MOE deceives, lies, and pays compensation to prevent AS protests. It is shown that the occurrence of separating equilibriums depends on the compensation paid to the AS. As a result, there will be no conflict if the compensation paid exceeds 10.25% of the planting cost. Also, the findings confirm that transferring the game from a pooling equilibrium to a separating equilibrium is a suitable strategy for resolving the conflict.