A bargaining model for sharing water in a river with negative externality

Shivshanker Singh Patel () and Parthasarathy Ramachandran ()
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Shivshanker Singh Patel: Indian Institute of Management Visakhapatnam, Andhra Univeristy Campus
Parthasarathy Ramachandran: Indian Institute of Science Bangalore

OPSEARCH, 2022, vol. 59, issue 2, No 13, 645-666

Abstract: Abstract This article is focused on the problem of river sharing in the presence of pollution as a negative externality between two riparian states (agents). In this paper, a market-based contract mechanism is presented; it can address the issue of negative externality imposed by an upstream agent on the downstream agents while sharing a river. The proposed mechanism incorporates a penalty for pollution and also incentives for trading water between upstream and downstream agent. The mechanism introduces a new concept of negative water as penalty against pollution for an upstream agent in a contract for water sharing. The contract is analyzed by a market-based bargaining model to determine a negotiated treaty between the upstream agent and the downstream agent. The results show the characterization of agents with regard to agreement points for negotiated treaty. Also, it shows that an equilibrium exists for a unique solution that makes both the agents better off. The model discussed in this paper can be easily applied to any transboundary river conflict where pollution plays an important role.

Keywords: River sharing problem; Negative externality; Bargaining (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s12597-021-00555-z

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