Two Level Negotiations in Bargaining over Water

The paper analyzes the impact of a two-level game for water allocations. For a model with two domestic groups and two countries, and with both domestic and international negotiations, Nash bargaining theory is used to derive several propositions on the consequences of different bargaining rules for water allocations. The effect on international negotiations of the ability to commit to having domestic negotiations is examined. The importance of the nature and timing of complementary investments, and whether they are included in negotiations, in affecting the efficiency of the negotiated outcome is also explored. This is a revised version of a paper presented at the International Game Theory Conference, Bangalore, India, January 2-6, 1996. We are grateful to the organizers of the conference, and for the helpful comments of participants, particularly Debraj Ray, Kalyan Chatterjee and Satya Das. We are most indebted to an anonymous referee for incisive comments that helped us to substantially improve the paper. Financial support was received from the University of California, Institute on Global Conflict and Cooperation; Indian Statistical Institute; and the University of California, Santa Cruz, Academic Senate and Division of Social Sciences. Nirvikar Singh also acknowledges the hospitality of the Centre for Development Economics, Delhi School of Economics, where he was a Senior Visiting Fellow during December 1995 and January 1996. We received helpful research assistance from Hui Miao. Remaining errors are our responsibility alone.