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Proposed here is a new scheme for allocating international river water that accounts for the stochastic nature of water supply and the dynamic nature of its demand. The suggested scheme is expected to improve the efficiency of river basins' water allocation and the riparians' welfare.International river and lake basins constitute about 47 percent of the world's continental land area, a proportion that increases to about 60 percent in Africa, Asia, and South America. Because water is a scarce and increasingly valuable resource, disputes about water allocation within these basins often contribute to regional tensions and conflicts.Many principles of international law have been developed to allocate water within a water basin and to prevent or resolve international water disputes. Unfortunately, they rarely are easy to apply and often are contradictory. Sharing river water is particularly difficult because the effects are one-way, with upstream downstream supply disputes have been among the most common. Agreements about the allocation of river water often last only until the first drought, when reduced flow denies some their full shares.Kilgour and Dinar develop a simple formal model of water allocation among states within a river basin. They analyze the model in the context of variable flow rates, to project the behavior of riparian states during periods of above normal and below normal flow.Their objective: to understand when, where, and how much the economic interests of the states conflict, to develop principles guaranteeing efficient allocations of scarce water supplies, and to identify when stable (self enforcing) allocation agreements are possible. They also consider the possibility of using alternative sources of supply and of accommodating growth in demand.Satellite technology will soon dramatically improve the ability of riparian states to predict annual flow volumes. In addition, water basin authorities will have real-time data on riparians' water use. These developments will have important implications for the enforceability and the flexibility of river water allocation systems.This model shows how flexibility can be used to construct more durable systems for sharing water among riparian states. The new allocation methods proposed here should contribute to the better management of scarce water supplies, a crucial issue in an increasingly thirsty world.This paper a product of the Agricultural Policies Division, Agricultural and Natural Resources Department is part of a larger effort in the department to implement the World Bank Water Resources Management Policy. Copies of the paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Cicely Spooner, room N8039, extension 32116 (23 pages)The full report is available on the World Bank FTP server
