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Decentralized mechanisms for river sharing

Jens Gudmundsson, Jens Leth Hougaard and Chiu Yu Ko ()

Journal of Environmental Economics and Management, 2019, vol. 94, issue C, 67-81

Abstract: We study decentralized implementation of efficient outcomes through multilateral bargaining in the river sharing problem. We introduce a class of mechanisms in the form of two-stage games in which agents first announce consumption levels and then bargain over monetary compensations. The defining characteristic of a mechanism is the way it assigns bargaining power to agents as a consequence of their locations, inflows, and consumption decisions. We first determine which mechanisms give incentives to always allocate the water efficiently, in the sense that, regardless of the agents' benefit functions, equilibrium play always yields an efficient outcome. Among these, we take an axiomatic approach to single out three mechanisms that guarantee a fair division of the welfare gain obtained through cooperation along the river.

Keywords: River sharing; Decentralized mechanism; Efficient allocation; Implementation; Bargaining; Consistency (search for similar items in EconPapers)
JEL-codes: C72 C78 D61 D82 Q34 (search for similar items in EconPapers)
Date: 2019
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Journal of Environmental Economics and Management is currently edited by M.A. Cole, A. Lange, D.J. Phaneuf, D. Popp, M.J. Roberts, M.D. Smith, C. Timmins, Q. Weninger and A.J. Yates

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