Production-Use Water Pricing and Corporate Water Use in China: An Evolutionary Game Theory Model

Abstract

Decisions related to pricing production-use water are a critical issue that local governments in China are facing. Its significance has increased in recent years, as a serious corporate water-supply shortage has surfaced with rapid economic development and urbanization. Different from developed countries, the pricing of production-use water is a complex issue in China that involves the distribution of benefits among local governments, water-supply companies, and water-consuming companies, where the overall balance is affected by every slight adjustment. Based on the evolutionary game theory, this study constructs an evolutionary game model involving water-supply companies and water-consuming companies with a systematic analysis of the interaction process between the policy formulation related to water pricing by water-supply companies and the decision making related to water consumption by water-consuming companies. The research finds that the difficulty of balancing corporate financial benefits and public water conservation benefits has led to the complexity of water pricing. Moreover, raising water prices will not necessarily cause companies to save water, but it will increase the production cost of the entire economy. This is the direct cause of low water prices, implemented by water-supply companies, in many regions of China.