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Water Allocation between States in Inter Basin Water Transfer in India

By Anik Bhaduri and Edward Barbier


In the following paper, we illustrate the proposed inter basin water transfer in India and attempt to do an ex ante analysis of the sharing of the transferred water between the donor and the recipient states. The paper identifies that one of the possible ways of water allocation could be market based, where through a commercial agreement water scarce states that receives transferred water pay the donor state a certain amount. Our results also indicate that such price based water transfer could lead to a most inefficient outcome.The donor states could charge a much higher price and the buyer would buy less amount of water. It would create large deadweight loss in the social welfare. The loss could increase further if there are many states in the middle between the donor and the ultimate beneficiary state. The paper also investigates water allocation in a situation where the state cares about the welfare of the other states. We find that with better relationship, the middle state could divert higher proportion of water even if the head state shares less water with the middle state. We also consider that political relations are crucial elements influencing the altruistic concerns of the states and thus in the determination of water allocation. We recognize the risk in benefit loss of water recipient states could stem from hostile political relationship between the donor and the recipient state. We have designed a penalty mechanism, which can deter the states from unilateral diversion of water in such cases, and facilitate to have an efficient allocation of water sustaining in the long run

Topics: Key words, Inter-basin Water Transfer, Water allocation, Market Based Water Transfer, Political Economy. 1 1. Introduction
Year: 2011
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