An improved pricing scheme for water rights trading based on the eBay auction model

【Objective】Water rights trading and the associated pricing mechanism are innovative strategies to enhance water use efficiency in regions facing freshwater scarcity. It is crucial to explore an effective pricing mechanism for water rights trading to stimulate market dynamics and foster intrinsic motivations for water conservation. This paper proposes a solution to address this issue.【Method】We proposed an innovative pricing mechanism and a specific algorithm for determining transaction prices, based on a second-price auction, with modifications inspired by eBay’s auction model. A numerical simulation was conducted using the Hetao Irrigation District in Inner Mongolia as a case study. Three auction participants were selected to simulate the bidding process, and their bidding strategies and price-setting behaviors were analyzed.【Result】The Phase I water rights trading project in the Hetao Irrigation District suffers from issues such as low transaction prices and insufficient compensation for stakeholders, due to the lack of a robust market selection mechanism. The auction rules and mechanisms proposed in this study can help protect sellers’ interests, encourage bidders to submit genuine bids, and foster mutually beneficial outcomes for both parties in the transaction.【Conclusion】The improved pricing mechanism for water rights trading, based on a second-price auction model, demonstrates strong adaptability in the context of public resource allocation. It provides a valuable algorithmic framework and serves as a reference for future water rights transaction projects nationwide.