This paper presents a new game theoretic methodology for water and discharge permit allocation to agricultural zones in shared rivers. The methodology consists of four main steps: (1) initial allocation of water rights and pollutant discharge permits, (2) forming possible coalitions and optimal water and discharge permit reallocation to water users participating in a coalition to increase their total net benefit, (3) equitable benefit reallocation by utilizing some solution concepts in cooperative game theory, and (4) identifying the best water and pollutant discharge permit allocation strategies by minimizing the maximum regret in the system. A new linear form for crop water production function is used in the objective function of the water allocation optimization models. To show the efficiency and applicability of the methodology, it is applied to the Karoon-Dez river system in Iran.
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