We propose an 'allocate-and-trade' institution to manage the eastern Nile River Basin for Ethiopia, Sudan and Egypt as the basin faces a new reality of the Grand Ethiopian Renaissance Dam (GERD). We find that a social planner could increase the region's economic welfare by assigning water rights to the riparian states. An alternative intrabasin water rights arrangement and trade could achieve more than 95 per cent of the welfare created by the social planner. GERD will change both the economic benefits and hydrological positions of the riparian countries. Economic benefits from alternative water use would be sufficient to make riparian countries better off compared with the status quo. Furthermore, riparian countries could raise more than US$680 m annually for protecting and conserving the natural resources of the region.

Common pool resources, such as international river basins with multiple riparian states, are hard to manage efficiently and equitably. In this paper, we suggest a methodology to assess the distributional aspects of various water allocation schemes applied to the Blue Nile in Africa. Based on previous analysis, a social planner allocation is found superior to the existing status quo in that it is inclusive, and expands the net benefit frontier of the basin. Water trade is introduced to demonstrate that such institution can alleviate the performance of existing institutions associated with the status quo and enable cooperation. Cooperative game theory concepts that address relative power of the riparian states in capturing incremental benefits from cooperation, such as the Core, the Shapley Value, and the Nash-Harsanyi (N-H) solution are compared under several scenarios, namely with and without water trade, and with and without existence of unidirectional externalities in the form of soil erosion and siltation impact. We find that the stability of Shapley and N-H benefits allocations are sensitive to the initial water rights allocation, which may explain the present caution of the basin states to be engaged in cooperation arrangements. We also find that when a Core exists it is very small, which indicates also a fragile basis for cooperation. © 2013 Elsevier B.V.

International rivers create complex relationships between their riparian states, which can contribute to economic, political, and social losses. Treaties provide a means for states to coordinate their actions in managing international river disputes to minimize these losses. However, there is little knowledge about treaty content and the factors influencing treaty design. We test whether a relationship exists between the challenges of negotiating, complying, and distributing the gains in bilateral, multilateral, and basin-wide negotiation contexts and the depth of cooperation along with the degree of institutionalization. While the great challenges confronting multilateral or basin-wide negotiations can produce treaties that focus on joint gains and shallow cooperation to secure the signature of riparians, we find that they can also provide opportunities for deeper, more behavior-altering, cooperation. To manage the difficulties of maintaining multilateral cooperation, we find a higher degree of institutionalization. We also find that bilateral negotiations provide states with opportunities for deeper cooperation, but a lower degree of institutionalization.

Examinations of international water treaties suggest that riparian states are not heeding the advice to adopt IWRM. Theories suggest that the larger the number of negotiating states, the lower the cost (per state) of the joint operation of treaties, but the higher the transaction costs of negotiating and maintaining them. We model the trade-off between benefits and costs associated with the number of treaty signatories and apply it to a global treaty data-set. Findings confirm that the transaction costs of negotiation and the economies of scale are important in determining the paucity of basin-wide agreements, the treaties’ content and their extent.