Water sharing in Fergana Valley

Abstract

This paper proposes a Social planner, Nash-Bargaining and Market-based allocations of water between Uzbekistan and Tajikistan, as well as the strategic interaction of those countries under serial monopoly setting. It is the first attempt to analyze water allocation from the part of the Syr-Darya river that flows through Uzbekistan to Tajikistan and back to Uzbekistan. Such geographical feature makes Uzbekistan both downstream and upstream country in relation to Tajikistan, which is uncommon for upstream-downstream problems. This work describes the equilibrium water consumption, prices, and transfers between two countries under Social planner and two decentralised water division mechanisms. Comparing solutions from the decentralised approaches, we can see that both market-based and Nash-Bargaining mechanisms allocate water in a Pareto optimal way. But these desired allocations are achieved through different magnitudes of transfers. Under the market solution, Uzbekistan receives the whole gain from the trade, while Tajikistan gains nothing. In contrast, Nash-Bargaining solution splits benefit from trade according to the bargaining power. Finally, water allocation is no longer Pareto efficient under serial monopoly setting: at least one county would set the price above the socially optimal level