Sustainable Agreements on Stochastic River Flow

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. (0)10 408 9031 Duisenberg school of finance is a collaboration of the Dutch financial sector and universities, with the ambition to support innovative research and offer top quality academic education in core areas of finance. Terms of use: Documents in AbstractMany 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 analyze whether water allocation agreements can be self-enforcing, or sustainable. We do so using an infinitely-repeated sequential game that we apply to several classes of agreements. To derive our main results we apply the Folk Theorem to the river sharing problem using the equilibrium concepts of subgame-perfect equilibrium and renegotiation-proof equilibrium. We show that, given the upstream-downstream asymmetry, sustainable agreements allow downstream agents to reap the larger share of the benefits of cooperation.JEL Classification: C73, D74, F53, Q25

Seeking a strategic cross boundary solution to the Indus Water basin sharing decisions

“…The water allocation agreements must be stable in order to serve as effective and efficient instruments to enhance the water use efficiency. Since, these resource sharing agreements are mutually signed by sovereign states, there is lack of a supra‐national authority that ensure the strict compliance of the agreement, hence the countries always have an incentive to deviate from the agreement whenever the payoffs/ benefits of deviating from the agreement outweighs the benefits of compliance (Houba & Ansink, 2013). Keeping in view the scenario above, the following sections discusses the sharing of the Indus‐Basin among the Pakistan, India, China and Afghanistan.…”