Development of Inter-Sectional Water Market Framework for Improving Economic Efficiency of Groundwater Consumption

In this paper,, an efficient framework is presented for optimal allocation of groundwater resources at the activity area of local water market within the Isfahan-Borkhar plain. In the first step, to improve aquifer’s hydrological condition, farms’ groundwater permits are reduced using top-down and bottom-up approaches. The bottom-up approach proposes more acceptable strategies due to considering farms’ utilities trough creating a bargaining process among them. The second step involves modeling the sales of groundwater permits from farms to different industries using water exchanges integer mathematical programming method. In this model, exchange volume is determined in such a way as to maximize the system’s total profit by finding the optimal production amount of different products and the corresponding water consumption volume. The results for the farming year 2015-2016 show that farms increase the production amount in the industrial sector by planting profitable crops and selling their surplus water. However, farms still suffer losses due to reduced permits compared to their current status. Therefore, in the third step, the exchanges’ profits are fairly reallocated among water buyers and sellers using Shapley cooperative game. So that compared to the current status, the profits of farms and industry units increase by 55% and 19%, respectively. Therefore, the proposed framework is capable of to improve the economic efficiency of groundwater permits use, in addition to facilitating the implementation of the permits reduction policy.