Towards Optimal Treaties for Transboundary Watercourse Management

Abstract

It is typical for riparians sharing a transboundary watercourse to make interdependent decisions on the allocation of limitedly available water for competing uses, such as hydroelectric power generation or agriculture. Realising this, riparians may agree to enact a treaty for the joint determination and management of their water allocations. The risk of inadequate or excessive allocations stems from a poorly designed or implemented treaty, yet is hardly addressed systematically in the debate on treaty formation or execution. Our objective in this paper is to propose a modelling framework for optimising the establishment or operation of transboundary watercourse treaties. First, using a calibrated mixed complementarity problem, we characterise the optimal allocations based on the economic welfare for each of the riparians under an “infinite” or unconstrained amount of water. Then, using game theory, we explore the strategic implications of alternative allocations under a “finite” or constrained amount of water. If, under the set of constrained allocations, cooperation does not Pareto dominate defection, there is no incentive to write a treaty. As a potential solution to the impasse, we calculate the fair transfers required to transform the game in such a manner that cooperation is not only a dominant strategy Nash equilibrium, but also Pareto-superior. We draw lessons for the rational design or implementation of transboundary watercourse treaties, including the use of money damages or non-money inducements to enhance the prospects of compliance.