International Water Law and Fresh Water Dispute Resolution: A Coasean Perspective
47 Pages Posted: 15 Nov 2019 Last revised: 8 Sep 2020
Date Written: August 15, 2020
When it comes to resolving interstate freshwater disputes, International Law has developed a set of rules that relate to both the substance of these disputes, and the conduct of the disputing countries. ‘Equitable and reasonable utilization’ is commonly considered as the leading ‘substantive’ rule, ‘no significant harm’ as subsidiary to it, and the ‘duty to cooperate’ as the central ‘procedural’ rule. The purpose of this article is to analyze the merits of these substantive and procedural rules under the lens of the celebrated Coase theorem. The second part of the Coase Theorem observes that if transaction costs are present, then the legal rule governing the dispute between two parties should be one that minimizes the bargaining costs. This will ensure that the legal rule will generate an optimal allocation of resources. When it comes to international freshwater disputes there are usually high transaction costs such as unequal and asymmetric access to information by both the disputing parties and adjudicating tribunal, enforcement uncertainty, and unclear political goals of the parties. Therefore, a liability rule such as ‘equitable and reasonable utilization’ only furthers the uncertainty and bargaining costs, whereas a property rule such as ‘no significant harm’ is better at achieving dispute resolution (both theoretically and empirically). Moreover, when a so-called procedural rule such as the ‘duty to cooperate’ is imposed on the parties, this ensures a better negotiation environment, which leads to better dispute resolution outcomes even when imposed by a third party.
Keywords: Coase, Law & Economics, International Water, Freshwater, Equitable Utilization, Harm, Duty to Cooperate
JEL Classification: K33, K41, Q25
Suggested Citation: Suggested Citation