UC Riverside

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.