International Water Law and Fresh Water Dispute Resolution: A Coasean Perspective

Abstract

International Water Law has developed a set of rules for resolving interstate fresh water disputes that govern both the substance of these disputes and the conduct of the disputing states. “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 “normative” part of the Coase theorem observes that if transaction costs are high, then the legal rule governing the resolution of a dispute between two parties should minimize these costs. Such a legal rule will ensure an optimal and efficient allocation of resources.
International fresh water disputes usually involve high transaction costs such as unequal and asymmetric access to information, enforcement uncertainty, and unclear political goals of the parties. We argue that a legal rule such as “equitable and reasonable utilization” only increases uncertainty and transaction costs, whereas a rule such as “no significant harm” is better-suited to achieving efficient dispute resolution. Moreover, when a so-called procedural rule such as the “duty
to cooperate” is imposed on the parties and gives rise to its own set of obligations, this ensures a better negotiation environment, which in turn leads to more efficient dispute resolution.

Keywords: Coase, Law & Economics, International Water, Freshwater, Equitable Utilization, Harm, Duty to Cooperate

JEL Classification: K33, K41, Q25