River pollution creates negative externalities to downstream water users. In this paper, we analyze how voluntary joint action of water users can improve pollution abatement when optimal treatment cannot be enforced. We model a transboundary pollution game with a unidirectional pollutant flow. Players are identical except for their location along the river. We find that, surprisingly, the location of coalition members has no impact on coalition stability. Location does, however, affect overall welfare. The more upstream the members of the coalition are, the higher is the overall welfare because the positive externalities of cleaning accrue to a larger number of downstream water users.
We analyse coalition stability in a game with a spatial structure. We consider a set of agents located along a river who abstract scarce water for their own benefit. Agents may enter an agreement to mutually acknowledge property rights in river water as a prerequisite for water trade. We find that the potential benefits of water trade may not be sufficient to make all agents in the river cooperate and sign an agreement. Specifically, a complete market for river water may not emerge if there are four or more agents along the river. This result is driven by the spatial structure of our game, in which water that is to be delivered to a downstream coalition member via the territory of an intermediate singleton can be seized.
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AbstractWe analyse river sharing games in which a set of agents located along a river shares the available water. Using coalition theory, we find that the potential benefits of water trade may not be sufficient to make all agents in the river cooperate and acknowledge property rights as a prerequisite for trade. Specifically, a complete market for river water may not emerge if there are four or more agents along the river. Instead, a partial market may emerge where a subset of agents trades river water while other agents can take some of the river water that passes their territory.
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