DISSERTATION ABSTRACT

Runoff Variability & Transboundary Water Management: An Assessment of Risk to

Regional Agreements from Likely Climatic Change
Indrani Chatterjee
Water that is shared by two or more nations riparian to a water body is often governed by
international treaties. These treaties mostly specify water allocations between riparians
based on long term mean flows. Due to the imprecise and ambiguous nature of the terms
of the treaty, it is hard for riparian states to comply with treaty specifications, even under
the best circumstances. Climate Change may exacerbate the condition, leading to noncompliance and hindering the ability of river treaties to manage riparian conflicts. This
raises the concern whether arguments over use of a limited resource might turn into
international tensions and increase the likelihood of conflict among states.
In view of the above, this dissertation sets out to find answers to several questions such as
how does an international water treaty alter the welfare distribution of its signatories;
how differently is an upstream country affected by the treaty as opposed to a downstream
one; what could be the conditions under which a riparian might agree to comply with the
treaty; how to compute the probability of breakdown of a treaty; would the treaty be
stable even under conditions of scarcity and how would risk preferences influence the
compliance behavior and the stability of the treaty.

In order to answer these questions an analysis was conducted on the Tajo Basin shared
between Spain and Portugal. The Albufeira Convention (AC) signed between the
riparians and put into practice in the year 2000 rendered it possible to conduct a
comparative study of the pre and post treaty (cooperative) scenarios. Prior to the analysis,
a theoretical model is developed to formulate the accepted level of risk premium
associated with signing an international treaty and deriving the general conditions under
which a riparian would choose to retract from an existing treaty. The model is then
applied to the Tajo basin, to test if the conditions derived from the analytical framework
are met. Thus it follows with an empirical analysis estimating the impact of the existing
river treaty (AC) between Spain and Portugal on riparian welfare as well as estimating

the associated risk premiums under normal and drought scenarios. This was done by
using satellite data on several water availability indices. Subsequently, it adopted a
cooperative game theoretic (CGT) exposition to find some fair and efficient way of
allocating the gains from cooperation. Finally, the stability of such allocation schemes
were tested using several stability indices from the CGT literature. The sustainability of
the above treaty was also evaluated under extreme surface flows (drought conditions).

Simulations of pre and post treaty welfare distribution under normal conditions suggest
that Spain is worse off in the post treaty period while Portugal is better off. While
Portugal has a lower risk premium in the post treaty period compared to the pre treaty
period for both normal and drought scenarios; for Spain, the post treaty risk premium is
lower only under normal conditions while it is higher under drought conditions. This
suggests that when faced with scarce conditions Spains perception of risk increases from
complying with treaty specifications. Results from the CGT analysis suggest that under
risk neutrality, Portugal needs to offer side payments to Spain to ensure cooperation from
the Spanish side. However, in case of relatively high levels of risk aversion the Shapley
allocation are positive for both riparians and they are eager to sustain the grand coalition
both under normal as well as drought conditions. Thus cooperation seems to be a stable
outcome in case of high levels of risk aversion.

The existing literature, to the best of our knowledge, has not dealt with the assessment of
the impact of an international water treaty at a basin level, nor has it dealt with the
formulation and computation of the risk of such a treaty falling apart. Thus the main
contributions of this dissertation to the existing literature are fourfold. First, the
assessment of the impacts of the AC treaty on the agricultural welfare of each riparian as
well as of the basin as a whole. Second, the development of an analytical framework for
evaluating the likelihood of compliance and the risk of disintegration of the treaty. Third,
finding if there exists a fair and efficient allocation of payoffs from cooperation that
ensures stability of the AC treaty. Fourth, incorporation of risk preferences in computing
the treaty risk and assessing the stability of the treaty.