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Self-enforcing Agreements on Water allocation

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Author Info
Erik Ansink (Wageningen University)

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Abstract

Many water allocation agreements in transboundary river basins are inherently unstable. Due to stochastic river flow, agreements may be broken in case of drought. The objective of this paper is to analyse whether water allocation agreements can be self-enforcing. An agreement is modelled as the outcome of bargaining game on river water allocation. Given this agreement, the bargaining game is followed by a repeated extensive-form game in which countries decide whether or not to comply with the agreement. I assess under what conditions such agreements are self-enforcing, given stochastic river flow. The results show that, for sufficiently low discounting, every efficient agreement can be sustained in subgame perfect equilibrium. Requiring renegotiation-proofness may shrink the set of possible agreements to a unique self-enforcing agreement. The solution induced by this particular agreement implements the “downstream incremental distribution”, an axiomatic solution to water allocation that assigns all gains from cooperation to downstream countries.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2009.73.

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Date of creation: Sep 2009
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Handle: RePEc:fem:femwpa:2009.73

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Related research
Keywords: Self-Enforcing Agreement; Repeated Extensive-Form Game; Water Allocation; Renegotiation-Proofness;

Find related papers by JEL classification:
C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water

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  1. Erik Ansink & Arjan Ruijs, 2008. "Climate Change and the Stability of Water Allocation Agreements," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 41(2), pages 249-266, October. [Downloadable!] (restricted)
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  2. Busch, Lutz-Alexander & Wen, Quan, 1995. "Perfect Equilibria in Negotiation Model," Econometrica, Econometric Society, vol. 63(3), pages 545-65, May. [Downloadable!] (restricted)
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  3. D. Kilgour & Ariel Dinar, 2001. "Flexible Water Sharing within an International River Basin," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 18(1), pages 43-60, January. [Downloadable!] (restricted)
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  6. Bhat, Mahadev G. & Huffaker, Ray G., 2007. "Management of a transboundary wildlife population: A self-enforcing cooperative agreement with renegotiation and variable transfer payments," Journal of Environmental Economics and Management, Elsevier, vol. 53(1), pages 54-67, January. [Downloadable!] (restricted)
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  14. Yoon, Kiho, 2001. "A Folk Theorem for Asynchronously Repeated Games," Econometrica, Econometric Society, vol. 69(1), pages 191-200, January.
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