Distributional Impacts Of Welfare Allocations From Damming The Nile River

Using a partial equilibrium optimization model, we evaluate the performance of existing and future dams in the eastern Nile River basin (ENRB) for countries consisting of Ethiopia, Sudan, and Egypt. On top of unilateral allocation, we also propose three alternative water rights arrangements (WRAs) with and without intraregional water rights trade and internalizing the resource degradation externality. We found that the social planner would assign the Nile River water for economic sectors and basin countries that could generate more than $10 billion, the highest economic benefit to the region regardless of initial WRA. Unilateral use of Nile water would benefit Ethiopia and Sudan, but it would reduce the economic benefit for Egypt, a country that has relatively efficient irrigated agriculture. In addition, the proposed WRAs and trade could lead to efficiency, recovering up to 99% of the social planner’s outcomes. Allocate-and trade could also be cost-effective alternative to raise around $680 million for short- to medium-term abatement investment that can be used for reducing or eliminating resource degradation problem.