An Implementation-theoretic Analysis of Sharing a River with Positive and Negative Externalities

Abstract

We study strategic implementation of a unique welfare distribution that satisfies lower and upper bounds in a river sharing problem with positive and negative externalities. The unique welfare distribution, referred to as the downstream incremental distribution, is a distribution such that each country's welfare is its marginal contribution to the coalition consisting of its upstream countries. A new notion of lower bounds of welfare, referred to as the pessimistic core lower bounds, is introduced to deal with negative externalities. We show that under the situation where the set of drought-stricken countries is located downstream or upstream of the set of flood-stricken countries, the downstream incremental distribution satisfies the pessimistic core lower bounds and the aspiration upper bounds. In each situation, the strategic bargaining proposed here implements only the downstream incremental distribution in subgame perfect equilibrium.