A Mechanism Design Approach to a Cooperative Solution of Local Externality Problems: A Case Study of Irrigation

Abstract

"Cooperative technology improvements may ameliorate externalities, and potentially produce Pareto superior outcomes compared to noncooperative abatement strategies, but they may not be adopted without appropriate institutional mechanisms. To achieve cooperative outcomes, there is the need for institutional mechanisms giving incentives for adoption of cooperative technologies. Here, the design of a process and a solution algorithm is proposed based on combining welfare economic principles and games proposed for public goods, common property resources and externality problems. Concepts are applied to an irrigation externality problem in the Central Valley of California to demonstrate existence of a unanimously acceptable solution."

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Keywords

irrigation, common pool resources, mechanism design, externalities, cooperation, conflict resolution

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