Sequential sharing rules for river sharing problems
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We analyse the redistribution of a resource amongst agents who have claims to the resource and who are ordered linearly. A well known example of this particular situation is the river sharing problem. We exploit the linear order of agents to transform the river sharing problem to a sequence of two-agent river sharing problems. These reduced problems are mathematically equivalent to bankruptcy problems and can therefore be solved using any bankruptcy rule. Our proposed class of solutions, that we call sequential sharing rules, solves the river sharing problem. Our approach extends the bankruptcy literature to settings with a sequential structure of both the agents and the resource to be shared. In the paper, we first characterise the class of sequential sharing rules. Subsequently, we apply sequential sharing rules based on four classical bankruptcy rules, assess their properties, provide two characterisations of one specific rule, and compare sequential sharing rules with three alternative solutions to the river sharing problem.
KeywordsScale Invariance Priority Rule Sharing Rule Bankruptcy Problem Bankruptcy Rule
We thank an anonymous associate editor and referee for stimulating comments. We also thank Harold Houba, Carmen Marchiori, Arjan Ruijs, Ivan Soraperra and Dirk Van de gaer for providing comments on earlier versions of this paper. Part of this research was done while the first author was visiting the Department of Economics at Queen Mary, University of London.
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