Concern for fairness and incentives in water negotiations

Abstract

This paper focuses on transboundary water resources and investigates the presence of incentives to cooperate in investment projects for improving water availability. Investments over transboundary water cannot be always protected by suitable contractual arrangements because countries’ actions cannot be monitored and enforced by a third party. In such a case, the traditional literature predicts that cooperation rarely emerges due to the risk of ex-post opportunistic behaviours by the parties. This prediction does not provide a satisfactory representation of many real-world situations in which riparian countries have demonstrated a remarkable ability to cooperate over their shared water resources. This paper shows that it is possible to reconcile the empirical evidence with the theoretical approach if one assumes that countries display some concern for ‘fairness’ when negotiating, which depends on their initial level of investment. Within the proposed framework, the incentives to cooperate turn out to be higher than traditional literature predicts because, by engaging in the investment project, countries do not only increase the amount of water effectively available, but also—through their concern for fairness—the share of water obtainable at the bargaining table