Self-enforcing Agreements on Water allocation

Many 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 analyse whether water allocation agreements can be self-enforcing. An agreement is modelled as the outcome of bargaining game on river water allocation. Given this agreement, the bargaining game is followed by a repeated extensive-form game in which countries decide whether or not to comply with the agreement. I assess under what conditions such agreements are self-enforcing, given stochastic river flow. The results show that, for sufficiently low discounting, every efficient agreement can be sustained in subgame perfect equilibrium. Requiring renegotiation-proofness may shrink the set of possible agreements to a unique self-enforcing agreement. The solution induced by this particular agreement implements the “downstream incremental distribution”, an axiomatic solution to water allocation that assigns all gains from cooperation to downstream countries.Self-Enforcing Agreement, Repeated Extensive-Form Game, Water Allocation, Renegotiation-Proofness

Climate Change and the Stability of Water Allocation Agreements

We analyse agreements on river water allocation between riparian countries. Besides being efficient, water allocation agreements need to be stable in order to be effective in increasing the efficiency of water use. In this paper, we assess the stability of water allocation agreements, using a game theoretic model. We consider the effects of climate change and the choice of a sharing rule on stability. Our results show that both a decrease in mean river flow and an increase in the variance of river flow decrease the stability of an agreement. An agreement where the downstream country is allocated a fixed amount of water has the lowest stability compared to other sharing rules.Water Allocation, Stability, Climate Change, Game Theory

Reallocating Water: An Application of Sequent

We present an axiomatic approach to the reallocation of water rights among economic sectors. Reallocation may be appropriate when the current schedule of water allocation is considered unfair. Our proposed approach is based on the combination of initial water rights, sectors' claims to water, and an exogenous ordering of these sectors. We apply sharing rules, based on bankruptcy rules, to reallocate water, which complements other approaches to the reallocation of water rights, including those based on water markets. Our approach is illustrated using an application to water reallocation in Cyprus, where reallocation of water rights has been recognised as an essential step towards good water governance and one of the main challenges for current water policies.Water Reallocation, Sequential Sharing Rule, Water Scarcity, Axiomatic Approach, Cyprus

Sequential Sharing Rules for River Sharing Problems

We analyse the redistribution of a resource among agents who have claims to the resource and who are ordered linearly. A well known example of this particular situation is the river sharing problem. We exploit the linear order of agents to transform the river sharing problem to a sequence of two-agent river sharing problems. These reduced problems are mathematically equivalent to bankruptcy problems and can therefore be solved using any bankruptcy rule. Our proposed class of solutions, that we call sequential sharing rules, solves the river sharing problem. Our approach extends the bankruptcy literature to settings with a sequential structure of both the agents and the resource to be shared. In the paper, we first characterise a class of sequential sharing rules. Subsequently, we apply sequential sharing rules based on four classical bankruptcy rules, assess their properties, and compare them to four alternative solutions to the river sharing problem.River Sharing Problem, Sequential Sharing Rule, Bankruptcy Problem, Water Allocation

Framed field experiments with heterogeneous frame connotation

We study label framing effects in linear public goods games. By accounting for heterogeneous frame connotation, we can identify individual framing effects. We test for such effects in a field experiment on irrigation management in India. Using membership of the water users association as a proxy for frame connotation, we find a differential impact on contributions in the game. Members contribute relatively more under the irrigation frame than non-members as compared to an alternative, neutral, frame. We conclude that experimental behaviour is sensitive to framing at the individual level but that such individual effects may cancel out on average, which explains previous studies that find mixed or only weak effects of framing

Composition properties in the river claims problem

In a river claims problem, agents are ordered linearly, and they have both an initial water endowment as well as a claim to the total water resource. We provide characterizations of two solutions to this problem, using Composition properties which have particularly relevant interpretations for the river claims problem. Specifically, these properties relate to situations where river flow is uncertain or highly variable, possibly due to climate change impacts. The only solution that satisfies all Composition properties is the `Harmon rule' induced by the Harmon Doctrine, which says that agents are free to use any water available on their territory, without concern for downstream impacts. The other solution that we assess is the `No-harm rule', an extreme interpretation of the no-harm principle from international water law, which implies that water is allocated as far downstream as possible. In addition to characterizing both solutions, we show their relation to priority rules and sequential sharing rules

The economics of the limited access order

Violence and coercion are key to understanding economic and social interactions in any society. This premise was used by North et al. (2009) to distinguish three `patterns of social organization' that societies have used to solve the problem of violence. We model one of these, the `limited access order', that is still dominant today. This order is characterized by an elite coalition that uses coercion to extract economic rents, while restricting violence and containing bandits. Since violence is key, we choose to apply insights from the economic literature on conflict and appropriation. Our model puts structure on the main elements of the limited access order. It allows us to assess some of its characteristics, by identifying conditions under which a sizeable elite emerges that is capable of limiting the activities of bandits and thereby provides order and stability. Our results show large variations in elite size, appropriation, production levels, and welfare across limited access societies due to only minor variations in exogenous model parameters, such as productivity, the cost of conflict, and the decisiveness of conflict. A striking result is that, within the limited access order, unproductive societies are faced with a high tax rate and a large elite, while productive societies are faced with a low tax rate and a small elite. The difference in additional productivity between these societies is offset by increased appropriation by bandits in absence of a strong elite, resulting in welfare being maximized for moderate levels of productivity

The economics of violence in natural states

Violence is key to understanding human interaction and societal development. The natural state of societal organization is that a subset of the population, capable of mustering organized large-scale violence, forms an elite coalition that restrains both violence and coercive appropriation. We highlight key mechanisms underlying such natural states using insights from the economic literature on conflict and appropriation. Our results show large variations in elite size, appropriation, production levels, and welfare across natural states due to only minor variations in exogenous model parameters. Specifically, unproductive societies tend to have a large elite coalition and a high tax rate. Only when the elite coalition is small (which occurs in societies with high productivity) but still able to control a sizeable share of production, can societies prosper in a natural state