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Decentralized mechanisms for river sharing

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Jens Gudmundsson, Jens Leth Hougaard, Chiu Yu Ko

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.

Original languageEnglish
JournalJournal of Environmental Economics and Management
Volume94
Pages (from-to)67-81
Number of pages15
ISSN0095-0696
DOIs
Publication statusPublished - Mar 2019

    Research areas

  • Bargaining, Consistency, Decentralized mechanism, Efficient allocation, Implementation, River sharing

ID: 212910394