Association for Public Policy Analysis & Management

Game theory is a powerful formal model for policy analysis of water resource management negotiations. This methodological technique illuminates each player’s beliefs and preferences that lead them to choose non-cooperative strategies with suboptimal outcomes, even though cooperative strategies would yield optimal or better payoffs. This paper argues that player attitudes toward bilateral cooperation and exogenous factors, such as droughts, affect the game payoffs. Using strategic games in their normal form (static games), this paper analyzes the options available to Mexico and the United States in the management of the distribution of water from the Colorado River basin. The analysis focuses primarily on the results of the binational negotiations of Minute Number 319 of the International Boundary and Water Commission, Mexico and the United States. We hypothesize three scenarios –cooperation, non-cooperation, and drought–using game theory to test the role of preferences and drought conditions in the negotiations. The related payoffs are estimated based on the benefits and costs that each party obtains with each strategy –cooperate or defect– in each scenario. The results suggest that an upstream country –the U.S. in this case – registers a dominant preference for either collaborating or defecting from cooperation depending on the player’s preferences toward building future cooperation with its neighbor, whereas the downstream country –Mexico– would rely on its beliefs about the other player’s preferences to choose the best payoff possible. However, strengthening the collaboration mechanisms that involve state-level authorities on both sides of the border, and providing them with incentives to cooperate, also affect the payoffs and outcomes of the game under a cooperative scenario. Drought conditions make actors indifferent to building future cooperation, allowing external factors, such as other issues in the bilateral relationship, to influence the players’ preferences and the game outcomes. This analysis contributes to prior research regarding the influence of institutional arrangements and natural phenomena on payoff definition, and consequently, on strategic interaction and decision-making outcomes in international water resource management and allocation.