Economic potential and political considerations of regional water trade: The Western Middle East example

Abstract

Development of many regions in the world is conditioned on out-of-region supply of water. Sometime out-of-region may mean another country. When the contributing country has riparian rights to these water, conditions for cooperation must exist in order to transfer the water. If the allocation is assumed among countries with some level of hostility, political considerations which are usually not incorporated in economic analysis can hinder or even block the most efficient arrangement. The problem has several physical, economic and political aspects. This paper draws on a water trade framework (including transfer of water and irrigation technology), to evaluate a regional trade in water. This framework quantifies both the economic payoffs using n-person game theory, and the political likelihood of any of the coalitions actually forming, using the PRINCE Political Accounting System. The economic-political approach is applied to a case of a potential Nile water trade in the western Middle East. The results demonstrate how incorporating political considerations in the analysis may provide a more acceptable regional solution compared to the economic-related allocations.