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Dynamic management of water transfer between two interconnected river basins

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  • Francisco Cabo
  • Katrin Erdlenbruch
  • Mabel Tidball

Abstract

This paper analyzes the dynamic interaction between two regions with interconnected river basins. Precipitation is higher in one river- basin while water productivity is higher in the other. Water transfer increases productivity in the recipient basin, but may cause environmental damage in the donor basin. The recipient faces a trade-o between paying the price of the water transfer, or investing in alternative water supplies to achive a higher usable water capacity. We analyze the design of this transfer using a dynamic modeling approach, and compare solutions with di erent information structure with the cooperative solution. Contrary to standard games, where decision variables di er among players, we assume that both players take the decisions concerning the water transfer. The equilibrium between supply and demand determines the optimal transfer price and amount. If the problem were set as a static game, the non-cooperative solution would match the cooperative solution. However, in a more realistic dynamic setting, in which the recipient uses a feedback information structure, the cooperative solution will not emerge as the equilibrium solution. The transfer amount is lower than in the case of cooperation, while the investment in usable water capacity is higher. Finally we numerically compare our results to the Tagus-Segura water transfer described in Ballestero (2004).

Suggested Citation

  • Francisco Cabo & Katrin Erdlenbruch & Mabel Tidball, 2013. "Dynamic management of water transfer between two interconnected river basins," Working Papers 13-09, LAMETA, Universtiy of Montpellier, revised Oct 2013.
  • Handle: RePEc:lam:wpaper:13-09
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    File URL: http://www.lameta.univ-montp1.fr/Documents/DR2013-09.pdf
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    References listed on IDEAS

    as
    1. Enrique Ballestero, 2004. "Inter-Basin Water Transfer Public Agreements: A Decision Approach to Quantity and Price," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 18(1), pages 75-88, February.
    2. Ambec, Stefan & Ehlers, Lars, 2008. "Sharing a river among satiable agents," Games and Economic Behavior, Elsevier, vol. 64(1), pages 35-50, September.
    3. Ambec, Stefan & Sprumont, Yves, 2002. "Sharing a River," Journal of Economic Theory, Elsevier, vol. 107(2), pages 453-462, December.
    4. Kaveh Madani & Keith Hipel, 2011. "Non-Cooperative Stability Definitions for Strategic Analysis of Generic Water Resources Conflicts," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 25(8), pages 1949-1977, June.
    5. Dockner Engelbert J. & Van Long Ngo, 1993. "International Pollution Control: Cooperative versus Noncooperative Strategies," Journal of Environmental Economics and Management, Elsevier, vol. 25(1), pages 13-29, July.
    6. Dinar, Ariel & Wolf, Aaron, 1994. "Economic potential and political considerations of regional water trade: The Western Middle East example," Resource and Energy Economics, Elsevier, vol. 16(4), pages 335-356, November.
    7. Bhaduri, Anik & Barbier, Edward B., 2008. "International water transfer and sharing: the case of the Ganges River," Environment and Development Economics, Cambridge University Press, vol. 13(01), pages 29-51, February.
    8. Kilgour, D. Marc & Dinar, Ariel, 1995. "Are stable agreements for sharing international river waters now possible?," Policy Research Working Paper Series 1474, The World Bank.
    9. Lancaster, Kelvin, 1973. "The Dynamic Inefficiency of Capitalism," Journal of Political Economy, University of Chicago Press, vol. 81(5), pages 1092-1109, Sept.-Oct.
    10. D. Kilgour & Ariel Dinar, 2001. "Flexible Water Sharing within an International River Basin," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 18(1), pages 43-60, January.
    11. Dockner,Engelbert J. & Jorgensen,Steffen & Long,Ngo Van & Sorger,Gerhard, 2000. "Differential Games in Economics and Management Science," Cambridge Books, Cambridge University Press, number 9780521637329.
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    Cited by:

    1. repec:eee:ecolec:v:140:y:2017:i:c:p:46-57 is not listed on IDEAS
    2. repec:spr:waterr:v:31:y:2017:i:11:d:10.1007_s11269-017-1678-6 is not listed on IDEAS
    3. Yuan Quan & Chenxing Wang & Yan Yan & Gang Wu & Hongxun Zhang, 2016. "Impact of Inter‐Basin Water Transfer Projects on Regional Ecological Security from a Telecoupling Perspective," Sustainability, MDPI, Open Access Journal, vol. 8(2), pages 1-12, February.
    4. Cabo, Francisco & Tidball, Mabel, 2017. "Promotion of cooperation when benefits come in the future: A water transfer case," Resource and Energy Economics, Elsevier, vol. 47(C), pages 56-71.
    5. repec:gam:jsusta:v:8:y:2016:i:2:p:162:d:63642 is not listed on IDEAS

    More about this item

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water

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