Article
Nash Bargaining in a General Equilibrium Framework: The Case of a Shared Surface Water Supply
Water Resources and Economics
(2022)
Abstract
We extend the axiomatic Nash bargaining approach to the context of interregional water sharing in order
to assess the approach’s normative implications in a general equilibrium (GE) framework. The GE model
is applied to a water development project proposed for the Wasatch Front and Cache Valley regions of
Utah – the Bear River Development Project (BRDP). We demonstrate conceptually how an allocation
rule and attendant net regional welfare measures are endogenously determined as equilibrium solutions
to the bargaining problem. Numerical analysis, based upon a simulation model calibrated to current
data, reveals that Nash bargaining is generally infeasible as a solution mechanism for sharing surplus
water supplies generated through the implementation of the BRDP, with or without potential ex post
side-payments made between Cache Valley and the Wasatch Front. Only in the special case of (1)
larger future regional population sizes, (2) a hypothetical, joint per-capita cost-share arrangement where
total project (i.e. fixed) costs are shared equally across the two regions, (3) hypothetically larger water
augmentation rates, and (4) the ignoring of potential environmental costs, is the Nash bargaining solution
viable. Otherwise, for all other scenarios where the analysis is based upon current or future population
sizes, joint- or region-specific cost-share arrangements, lower or higher water augmentation rates, and
internalized or externalized environmental costs, the Nash bargaining solution is found to be unattainable
as a potential mechanism to share surplus water supplies produced by the BRDP.
Keywords
- Nash Bargaining Solution,
- Optimal Water-Sharing Agreement,
- Water Trading
Disciplines
Publication Date
2022
DOI
https://doi.org/10.1016/j.wre.2022.100206
Citation Information
Arthur J. Caplan and Arpita Nehra. "Nash Bargaining in a General Equilibrium Framework: The Case of a Shared Surface Water Supply" Water Resources and Economics Vol. 39 (2022) Available at: http://works.bepress.com/arthur_caplan/142/