Flexible Water Sharing within an International River Basin

Increasing scarcity of water resources, and greatervariability in available water supply, are causingacute difficulties for allocation agreements amongusers of water bodies. One cause of controversy,especially for river waters, is the inability of mostallocation operations to accommodate variations inconditions. In this paper we develop a flexiblemechanism that produces a Pareto-efficient allocationfor every possible flow volume in a river. Extensionsto accommodate other kinds of variation, such as waterdemand, are feasible. The mechanism is demonstratedusing historical water flow data for the Ganges, basedon stylized water demand relationships for India andBangladesh. Quantitative comparison between fixed andvariable allocation suggests that variable allocationsubstantially outperforms fixed allocation, improvingregional welfare by at least ten percent.     

Voting for Burden Sharing Rules in Public Goods Games

We experimentally investigate whether groups of heterogeneous agents can reach an agreement on how to share the costs of providing a public good. Thereby, we explore the performance of different burden sharing rules being implemented either endogenously or exogenously. In case of an endogenously implemented burden sharing rule, subjects vote for different burden sharing schemes either by unanimity or majority vote. Despite the fact that preferences for the allocation schemes differ among agents, most groups agree upon a common scheme, and consequently avoid an uncoordinated action. Our results reveal both the opportunities and risks of burden sharing negotiations. We find average efficiency levels to increase in case an agreement is reached. If groups however fail to agree upon a common rule, cooperation collapses and efficiency levels decrease compared to a voluntary contribution mechanism being exogenously imposed. Most importantly, agents who face a voting decision on average receive higher payoffs than agents in an exogenously implemented voluntary contribution mechanism and do not earn less than participants in any externally determined burden sharing rule.     

INTERNATIONAL TRADE NETWORKS UNDER GLOBAL TREATY STABILITY

The stability of international trade networks has been investigated using the pairwise stability concept. This concept is suitable to study the formation of bilateral agreements. However, it cannot be used to determine the stability of global trade agreements. This article proposes an alternative stability concept that can be adopted to determine the stability of global agreements such as the Doha agreement. This concept is named in this paper Global Treaty Stability.     

Democracy, collective action and intra-elite conflict

We analyze a model where there is uncertainty about the future power of two ex-ante symmetric elites to appropriate surplus, and ex-ante surplus sharing agreements are not binding. We show that in an oligarchy, the stronger elite appropriates the entire available surplus, whereas a democracy results in a more balanced surplus allocation between the two elites. In a democracy, the newly enfranchised non-elite organize to act collectively, so that the weaker elite can credibly threaten to form a coalition with the organized non-elite against the stronger elite. Such a threat ensures that the more balanced surplus sharing proposal chosen by majority voting is renegotiation-proof. Therefore, sufficiently risk-averse elites unanimously choose democracy as a form of insurance against future imbalances in relative power. We emphasize that franchise extension to, and low cost of organizing collective political activity for, the non-elite are both necessary features of a democracy. Our formal analysis can account for the stylized facts that emerge from a comparative analysis of Indian and Western European democracies.     

Self-enforcing International Environmental Agreements with Costly Monitoring for Compliance

Theoretical analyses of international environmental agreements (IEAs) have often employed the concept of self-enforcing agreements to predict the number of parties to such an agreement. The term self-enforcing, however, is a bit misleading. The concept refers to the stability of cooperative agreements, not to enforcing compliance with these agreements once they are in place. In this paper we analyze an IEA game in which parties to an agreement finance an independent monitor who audits the compliance performance of the members of an agreement. These audits reveal instances of noncompliance so they can be sanctioned. We find that costly monitoring of compliance limits the circumstances under which international cooperation to protect the environment is worthwhile, but when IEAs do form they will often involve greater participation than IEAs that do not require costly monitoring. Consequently, costly monitoring of IEAs can produce higher international environmental quality. Moreover, under certain conditions, aggregate welfare is higher when IEAs require costly monitoring.      

Market Sharing Agreements and Collusive Networks*

We analyze reciprocal market sharing agreements by which firms commit not to enter each other's territory in oligopolistic markets and procurement auctions. The set of market sharing agreements defines a collusive network. We characterize stable collusive networks when firms and markets are symmetric. Stable networks are formed of complete alliances, of different sizes, larger than a minimal threshold. Typically, stable networks display fewer agreements than the optimal network for the industry and more agreements than the socially optimal network. When firms or markets are asymmetric, stable networks may involve incomplete alliances and be underconnected with respect to the social optimum.     

Renegotiation–Proof Equilibria in a Global Emission Game When Players Are Impatient

In a two-country model, in which countries differ with respect to the perception of environmental damages and abatement costs, the stability of international environmental agreements is analyzed in a dynamic framework. Three types of agreements are considered: A socially optimal solution, a uniform emission tax (a tax equally applied in both countries) and a uniform emission reduction quota (an equal percentage emission reduction from a base year). Stability is checked for these agreements according to the concept of renegotiation-proofness. It is shown that the stability requirements depend crucially on the parameters defining the interests of the two countries and the type of agreement. Moreover, it is demonstrated that if punishment options are restricted for some reason the stability of an agreement may suffer. One important result of the paper is that if countries exhibit asymmetric interests, stability in the quota regime is higher than in the tax regime and in the social optimum. This might explain why emission reduction quotas have been so popular in international politics despite recommendations of economists to use market-based instruments.     

Code-sharing Agreements and Interconnections in Markets for International Flights

The paper investigates the consequences of code‐sharing agreements among airline firms competing on international routes, where some passengers interconnect to flights originating or terminating at cities not served by foreign airlines. The authors calculate the precise market share captured by flights operated under code sharing. They compare airfares, market shares, profits, and passengers’ welfare before and after the implementation of a code‐sharing agreement and demonstrate that code sharing is Pareto‐improving.     

Costly Enforcement of Voluntary Environmental Agreements

We examine the consequences of costly enforcement on the ability of voluntary agreements with industries to meet regulatory objectives, the levels of industry participation with these agreements, and the relative efficiency of voluntary and regulatory approaches. A voluntary agreement can be more efficient in reaching an aggregate emissions target than a conventional emissions tax, but only if: (1) profitable voluntary agreements in which members of the agreement pay for its enforcement exist; (2) members of a voluntary agreement actually bear the costs of enforcing the agreement; (3) the agreement is enforced by a third-party, not the government, and (4) this third-party enforcer has a significant advantage in monitoring technology and/or available sanctions over the government.     

Credible Power-Sharing Agreements: Theory with Evidence from South Africa and Lebanon

Ipresent a simple model to examine the structure of credible post-conflictpower–sharing agreements. I first show that power–sharingis necessary to induce warring factions to choose democraticrule over the status-quo. When warring factions have commitmentproblems, I show that the agreements require a restructuringof the coercive institutions of the state. The theoretical resultsare supported by a wide ranging empirical study by Hartzell (1999)on the stability of negotiated settlements of civil wars foughtduring the post World War II era. I illustrate the results withcase studies on Lebanon and South Africa.     

Do binding agreements solve the social dilemma?

We investigate experimentally whether “binding agreements” can provide a solution to the social dilemma that arises in the presence of pure public goods. Signing a binding agreement can prevent players from free riding on the contributions to the public good. However, a well known theoretical result is that the outcome of the endogenous formation of agreements is not necessarily efficient. Our setting is a bargaining game in which agreements form sequentially. The individual level of contribution to the public good increases with the size of the coalition reaching an agreement and the global agreement is always the socially optimal structure. There are two equilibrium outcomes, the global agreement and an asymmetric structure, which consists of two coalitions of different sizes, the small one free riding on the contributions of the larger one. We run an experiment which lends force to the theoretical result that outcomes may be inefficient. However, subjects do not play Nash and the experimental outcome is, on average, even more inefficient than the theory predicts. Our analysis leads to the conclusion that different types of behaviour co-exist.     

流域水资源影子价值的空间模型

河流特定位置污染的累积效应对水质的影响是该点上游取水量和污染排放量的函数。本文分析了在不同的取水和排污机制下维持水质的可能性。我们给出了在环境约束条件下最优的水资源和排污配置分析解。由于累积效应,取水权和排污权的影子价值是因地而异的。     

(Un)stable vertical collusive agreements

In this paper, we extend the concept of stability to vertical collusive agreements involving downstream and upstream firms, using a setup of successive Cournot oligopolies. We show that a stable vertical agreement, the unanimous vertical agreement involving all downstream and upstream firms, always exists. Thus, stable vertical collusive agreements exist even for market structures in which horizontal cartels would be unstable. We also show that there are economies for which the unanimous agreement is not the only stable one. Furthermore, the Stigler statement according to which the only ones who benefit from a collusive agreement are the outsiders need not be valid in vertical agreements.     

The impact of preferential trade agreements on the duration of antidumping protection

This paper examines the impact of preferential trade agreements on the duration of antidumping protection. We employ a two-step selection model where the first step accounts for the impact of membership in a preferential trade agreement on the original antidumping determination and the second step estimates the impact of membership in a preferential trade agreement on the duration of the measures. We find the duration of antidumping protection is about 17% shorter for preferential trade agreement members compared with targeted countries that are not preferential trade agreement members. The impact on duration depends largely on whether preferential trade agreements have rules related specifically to antidumping. Preferential trade agreements with rules are associated with a 28% reduction in the duration of protection, whereas the duration for preferential trade agreements without rules is not statistically different from the duration for non-preferential trade agreement countries. While the duration of antidumping measures against China is longer than for other countries, the impact of preferential trade agreement rules is robust to controlling for China.     

Public good agreements under the weakest‐link technology

We analyze the formation of public good agreements under the weakest‐link technology. Whereas policy coordination is not necessary for symmetric players, it matters for asymmetric players; however, this fails in the absence of transfers. By contrast, with a transfer scheme, asymmetry may be an asset for cooperation. We characterize various types and degrees of asymmetry and relate them to the stability of self‐enforcing agreements. Asymmetric distributions of autarky public good provision levels (also representing asymmetric interests in cooperation) that are positively skewed tend to be conducive to the stability of agreements. We show that under such conditions, even a coalition including all players can be stable. However, asymmetries that foster stability (instability) tend to be associated with low (high) gains from cooperation.     

Strategic timing in R&D agreements

We study the endogenous formation of R&D agreements in a R&D/Cournot duopoly model with spillovers where also the timing of R&D investments is endogenous. This allows us to consider the incentives for firms to sign R&D agreements over time. It is shown that, when both R&D spillovers and investment costs are sufficiently low, firms may find difficult to maintain a stable agreement due to the strong incentive to invest noncooperatively as leaders. In this case, the stability of an agreement requires that the joint investment occurs at the initial stage, thus avoiding any delay. When spillovers are sufficiently high, the coordination of R&D efforts becomes a profitable option, although firms may also have an incentive to sequence noncooperatively their investment over time. Finally, when spillovers are asymmetric and knowledge mainly leaks from the leader to the follower, investing as follower may become extremely profitable, making R&D agreements hard to sustain unless firms strategically delay their joint investment in R&D.     

Ethiopia’s Challenge to Egyptian Hegemony in the Nile River Basin: The Case of the Grand Ethiopian Renaissance Dam

Home to more than 160 million people, the Nile River Basin has become one of the hotspots of the global quest for food, water and energy security. Moving closer to its completion, the Grand Ethiopian Renaissance Dam (GERD) highlights the interplay between the food, water, and energy sectors and their implications on geopolitical power relations in the region. Despite Ethiopia having the highest volumetric contribution to the Nile river flow, Egypt has maintained hydro-hegemony over the basin for several decades on the basis of historical claims and colonial agreements. Egypt has stated that its volumetric share of the Nile’s water is not sufficient to sustain its growing population, declaring water availability a matter of national security. However, for Ethiopia, the GERD represents a crucial moment in its development agenda, acting as both a counterhegemonic power play, as well as a means to improving the hydropower capacity of the country, and ensuring future food security. This paper explores the various hegemonic and counter-hegemonic strategies employed by Egypt and Ethiopia respectively, highlighting the various ways in which food, water, and energy concerns are intrinsic components of the asymmetric power configurations of the Nile River Basin. By navigating the debate surrounding the GERD, this paper highlights the necessity of incorporating the food, water, and energy nexus into studies of hydro-hegemony and counter-hegemony. This allows the future policy direction for nexus management and governance in the Nile River Basin to move beyond benefit sharing, instead steering towards power sharing.     

Do South–South preferential trade agreements undermine the prospects for multilateral free trade?

Due to trade diversion, there have been concerns expressed over the proliferation of preferential trade agreements (PTAs) that include South countries. In this paper, we compare welfare across different geographic configurations of bilateral free trade agreements (FTAs) and customs unions (CUs) and examine their implications for the stability of multilateral free trade. While North–North PTAs do tend to yield higher global welfare than South–South PTAs, a single South–South FTA may make free trade more sustainable than any other single agreement. With pre‐existing North–North agreements and a large enough cost asymmetry between regions, an additional South member or a new South–South agreement always makes free trade harder to sustain.     

The Dynamics of Pharmaceutical Regulation and R&D Investments

The paper uses a real option approach to investigate the properties of two widely used schemes of regulating the reimbursement of new pharmaceutical products: standard cost‐effectiveness thresholds and performance‐based risk‐sharing agreements. The use of the latter has been quickly spreading and often criticized in recent times. The results show that the exact definition of the risk‐sharing agreement is key in determining its economic effects. In particular, despite the concerns expressed by some authors, the incentive for a firm to invest in R&D may be the same or even greater than under cost‐effectiveness thresholds. The greater flexibility on the timing of commercialization allowed by risk‐sharing schemes plays a key role, by increasing the value of the option to invest in R&D under uncertainty. Under this scheme, a higher value for the firm is associated with earlier access to innovations for patients. The price for this is less value for money for the insurer at the time of adoption of the innovation.     

Fresh surface water resource allocation between Bulgaria and Greece

This paper addresses the important issue of transboundary sharing of fresh surface water resources, including quantity and quality dimensions. It carves a simple economic model of the benefits which can be generated by maximizing the joint profits earned, when the resource is shared efficiently between two countries. The appropriate policy instrument towards this end is a bilateral agreement to charge the same water price to all water users in a given sector. Market clearance will then follow to determine the optimal water price. The case of the Nestos river flowing through Bulgaria and Greece, but overexploited by Bulgaria, in the Balkans is used as a case study. The empirical estimation of a fixed proportions production function for corn derives a marginal water value of the Nestos water for Greece. This value, which applies under the current non-cooperative solution, is higher than the optimal water price in the cooperative solution.