LINKING THE UNLINKED: TRANSBOUNDARY WATER-SHARING UNDER WATER-FOR-LEVERAGE NEGOTIATIONS

We develop a game-theoretic framework of negotiation over sharing of trans-boundary resources between neighboring countries. The downstream country offers a non-water “leverage” good in exchange for water access and makes a take-it-or-leave-it offer to the upstream country. The downstream country can further invest in water provision before the negotiations. We compare three types of outcomes: the first-best outcomes where an “ex-ante social planner” choses both the water investment and the water and leverage goods exchanged in the negotiations; the outcome when an “ex-post social planner” only enters at the negotiation stage; and the outcome of bilateral negotiations. We argue that all three cases can be empirically realistic; show that the outcome with the ex-post social planner can distort the downstream country’s investment incentive; and that the bilateral negotiation outcome can lead to water investment either below or above the efficient/ex-ante planner’s preferred choice.


Issue Date:
2016
Publication Type:
Conference Paper/ Presentation
PURL Identifier:
http://purl.umn.edu/235650
Total Pages:
16
JEL Codes:
F53; F51; Q25; R41




 Record created 2017-04-01, last modified 2017-08-29

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