Water rights trading: A new approach to dealing with trans-boundary water conflicts in river basins

Abstract

Climate change and increasing demand of water aggravate the frequency and intensity of trans-boundary water conflicts, which are evolving into one of the most sensitive economic and social issues in trans-boundary areas. This paper analyzes the inefficiency of traditional regional negotiation models to deal with trans-boundary water conflicts, and argues that Coase's theory of property rights is more suitable for dealing with trans-boundary water conflicts. Based on the Bayesian evolutionary game model with incomplete information of property rights, we put forward the following two ways to promote the smooth progress of water rights trading and, furthermore, resolve water resources conflicts: first, to reduce the transaction costs of the upstream and downstream regions; second, to increase utilization efficiency of water resources in the upper reaches. Finally, taking the water conflict of Dayankeng Hydropower Station as a case simulation, we give answers to the three questions: (1) under what conditions, both sides of the conflicts will choose water rights trading; (2) what is the impact of transaction costs on water rights trading, which provided a new way to solve trans-boundary water conflicts; (3) what is the improvement of welfare effects of water conflict participants because of water rights trading.