Efficiency and stability of self-organizing cooperation networks: roles of a cost allocation scheme for regional joint water distribution systems

With a focus on a regional joint water distribution system, this paper proposes a cost allocation scheme which guarantees an equilibrium reached by participating regions (players) who are self-organized to form appropriate cooperative relations (coalitions). Two critical properties of regional joint water distribution systems are discussed, i.e., physical and social networks. Characteristics of cost functions are closely examined by referring to the manner in which social network structure bind the optimal (economically efficient) design of respective physical network structure. It is shown that economies of scale may not always hold for water distribution pipeline systems. The notions of equilibria based on Myerson's value coupled with 'component balance' and 'equal bargaining power' are proved to serve as the intended cost allocation scheme. With a joint regional distribution system as a case study, illustrations are made to demonstrate the applicability of the proposed cost allocation scheme.