An integrated water quality-improving and quantity-saving mechanism under government interventions in water diversion supply chain

Water quality-improving and quantity-saving are crucial for the water environmental protection and sustainable water resources utilization in water diversion projects. Water diversion projects, which possess both public benefit and profit-driven characteristics, are not only influenced by the market transaction mechanisms but also influenced by the government interventions. This study develops a water diversion supply chain framework involving the government, supplier, distributor, and consumers to enhance social welfare by integrating water quality-improving and quantity-saving. Considering consumers’ preferences for water quality, a Stackelberg game model is used to capture decision-making interactions among stakeholders under a benchmark and three government intervention scenarios. The effectiveness of three interventions is evaluated via theoretical derivation and real-case analysis. We further examine the impacts of consumer preferences, precipitation, and government criteria on social welfare. The results indicate that all three government interventions can enhance both supply chain’s profit and consumer surplus when the water quality-improving cost coefficient is below the threshold of 0.556. Further, under dynamic environmental conditions (i.e., precipitation variation) or changes in government concern criteria, hybrid intervention shows greater robustness compared to single quality subsidy or quantity regulation, consistently yielding the highest social welfare. Note that misjudging consumer preferences for water quality may lead to substantial social welfare losses, with the maximum deviation in social welfare under different preference scenarios reaching 59.63%. Our findings provide practical insights for government to improve quality and save quantity in the water diversion projects for social welfare improvement.