November 12 (Thursday) 10:00-11:00, room E.118.2 (main building, 1st floor)
Helga Habis (Corvinus University of Budapest)
Why stochastic bankruptcy rules may fail in river sharing under uncertainty
Transboundary river basins are characterized by water scarcity, uncertainty, and limited enforceability of agreements, making self-enforcing allocation rules particularly important. In stochastic bankruptcy models of river sharing, the constrained equal awards rule appears self-enforcing. This paper revisits this conclusion by accounting for the physical structure of rivers. We show that, once the directional structure of river flows is taken into account, the Stochastic Constrained Equal Awards allocation may admit profitable deviations and therefore need not be self-enforcing. To address this problem, we introduce the Stochastic Downstream Incremental rule and provide sufficient conditions for its stability under uncertainty. The results suggest that policy conclusions based on aggregate allocation models may be misleading when the directional nature of river flows is ignored.