River coalitions and water trade

Abstract

We analyse coalition stability in a game with a spatial structure. We consider a set of agents located along a river who abstract scarce water for their own benefit. Agents may enter an agreement to mutually acknowledge property rights in river water as a prerequisite for water trade. We find that the potential benefits of water trade may not be sufficient to make all agents in the river cooperate and sign an agreement. Specifically, a complete market for river water may not emerge if there are four or more agents along the river. This result is driven by the spatial structure of our game, in which water that is to be delivered to a downstream coalition member via the territory of an intermediate singleton can be seized.