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Patel, S.S., & Ramachandran, P. (2021). A
bargaining model for sharing water in a river
with negative externality. OPSEARCH, 1-22.
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 analysed 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.
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