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Abstract

The paper explores the scope and sustainability of a self-enforcing cooperative agreement in the framework of a game theoretic model, where the upstream and downstream country, Burkina Faso and Ghana respectively in the Volta River Basin, bargain over the level of water abstraction in the upstream. In the model we consider the case where the downstream country, Ghana, offers a discounted price for energy export to the upstream country, Burkina Faso, to restrict its water abstraction rate in the upstream. The paper examines the benefits and sustainability of such self-enforcing cooperative arrangements between Ghana and Burkina Faso given stochastic uncertainty in the river flow. The findings of the paper suggest that at the present condition, the marginal benefit of Burkina Faso from increasing the water abstraction is much higher than that of Ghana’s marginal loss. However, the paper finds that if both countries’ water abstraction rates are at a much higher level, then the marginal loss of Ghana increases phenomenally from similar increase in water abstraction rate by Burkina Faso. Under such circumstances, there is an opportunity for Ghana to provide side payments in terms of discounted export price of power in order to motivate Burkina Faso to restrict water abstraction.

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