A game theory approach to deciding who will supply instream flow water

The resource management problem for the Middle Platte ecosystem is the insufficient water available to meet both instream ecological demands and out-of-stream economic needs. This problem of multiple interest groups competing for a limited resource is compounded by sharp disagreement in the scientific community over endangered species' needs for instream flows. In this study, game theory was used to address one dimension of this resource management problem. A sequential auction with repeated bidding was used to determine how much instream flow water each of three states-Colorado, Nebraska, and Wyoming-will provide and at what price. The results suggest that the use of auction mechanisms can improve the prospects for reaching a multi-state agreement on who will supply instream flow water, if the auction is structured to discourage misrepresentation of costs and if political compensation is allowed.