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Trading water along a river. (English) Zbl 1208.91103
Summary: A set of agents is located along a river. Each agent consumes certain amount of water he receives from his part of the river basin and may sell certain amount to his downstream agent if it is mutually beneficial. Water trading is restricted to two neighboring agents and an agent can only pass water to his downstream agent. We ask if this restricted trade to neighboring agents can implement an efficient allocation of water. We show that the efficient allocation of water can be achieved through the process of downstream bilateral trading. Specifically, we show that this one way “downstream” trading process implements the unique efficient allocation as well as a welfare distribution. We also show that the welfare distribution is in the core of the associated game of the problem. Moreover, we show that the coalition of agents upstream any agent obtains more welfare with the bilateral trading than with the downstream incremental distribution proposed by S. Ambec and Y. Sprumont [J. Econ. Theory 107, No. 2, 453–462 (2002; Zbl 1033.91503)] and less than with the upstream incremental distribution proposed by S. Ambec and L. Ehlers [Games Econ. Behav. 64, No. 1, 35–50 (2008; Zbl 1152.91613)].

MSC:
91B76 Environmental economics (natural resource models, harvesting, pollution, etc.)
91A12 Cooperative games
91B15 Welfare economics
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