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A Fair Contract for Managing Water Scarcity

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  • R. Amit
  • Parthasarathy Ramachandran

Abstract

In public utilities, under supply constraints, fairness considerations lead to a market failure. This paper characterizes a two-period principal-agent contract for demand management, that mitigates this market failure in urban water systems. The contract is designed as an extensive form mechanism using subgame perfect Nash equilibrium (SPNE) as the solution concept. The contract is fair; and is shown to be economically efficient if, in case of deviation by the agent, the gain to the agent and the loss to the principal are small. It is shown that the assumption can be avoided in an infinite horizon contract. Copyright Springer Science+Business Media B.V. 2010

Suggested Citation

  • R. Amit & Parthasarathy Ramachandran, 2010. "A Fair Contract for Managing Water Scarcity," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 24(6), pages 1195-1209, April.
    • Handle: RePEc:spr:waterr:v:24:y:2010:i:6:p:1195-1209
    DOI: 10.1007/s11269-009-9491-5
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    Cited by:

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    2. Xun-Gui Li & Xia Wei & Nai-Ang Wang & Hong-Yi Cheng, 2011. "Maximum Grade Approach to Surplus Floodwater of Hyperconcentration Rivers in Flood Season and its Application," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 25(10), pages 2575-2593, August.

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    Keywords

    Water demand management; Contract theory;

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