Sustainable Agreements on Stochastic River Flow

Tinbergen Institute Discussion Paper 13-182/II

40 Pages Posted: 8 Nov 2013

See all articles by Harold Houba

Harold Houba

VU University Amsterdam, Department of Econometrics; VU University Amsterdam, Tinbergen Institute

Erik Ansink

VU University Amsterdam - Department of Spatial Economics

Date Written: November 5, 2013

Abstract

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 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.

Keywords: river sharing, sustainable agreements, repeated sequential game, Folk Theorem, water allocation, renegotiation-proofness

JEL Classification: C73, D74, F53, Q25

Suggested Citation

Houba, Harold E. D. and Ansink, Erik, Sustainable Agreements on Stochastic River Flow (November 5, 2013). Tinbergen Institute Discussion Paper 13-182/II. Available at SSRN: https://ssrn.com/abstract=2351852 or http://dx.doi.org/10.2139/ssrn.2351852

Harold E. D. Houba

VU University Amsterdam, Department of Econometrics ( email )

De Boelelaan 1105
Amsterdam, 1081 HV
Netherlands

HOME PAGE: http://personal.vu.nl/h.e.d.houba/

VU University Amsterdam, Tinbergen Institute ( email )

De Boelelaan 1105
Amsterdam, 1081 HV
Netherlands

HOME PAGE: http://personal.vu.nl/h.e.d.houba/

Erik Ansink (Contact Author)

VU University Amsterdam - Department of Spatial Economics ( email )

De Boelelaan 1105
1081HV Amsterdam
Netherlands

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