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.
| Original language | English |
|---|---|
| Journal | Journal of Environmental Economics and Management |
| Volume | 94 |
| Pages (from-to) | 67-81 |
| Number of pages | 15 |
| ISSN | 0095-0696 |
| DOIs | |
| Publication status | Published - 2019 |
Funding
Jens Gudmundsson gratefully acknowledges the financial support from the Jan Wallander and Tom Hedelius Foundation . We thank the editor, three anonymous referees, Frank Jensen, and Jingyi Xue for insightful comments. We are grateful to the participants at the Workshop on Network Economics (Seville, 2017), the Workshop on Network and Games (Belfast, 2018), Social Choice and Welfare (Seoul, 2018), and the seminar participants at Korea University, Lund University, Seoul National University, Singapore Management University, South China University of Technology, and National University of Singapore for valuable feedback. Appendix A
Keywords
- Bargaining
- Consistency
- Decentralized mechanism
- Efficient allocation
- Implementation
- River sharing
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