Promotion of cooperation when benefits come in the future: A water transfer case

A country with a surplus river basin cooperates with a country with a deficit river basin in a joint investment project to build a water canal. The benefits from the existence of the canal are realized when cooperation halts and countries will have the opportunity to engage in a non-cooperative water market game. We define an imputation distribution procedure to share the “burden” from cooperation. Investment costs while cooperation must be allocated according with future benefits from the water market. With this principle we prove that the cooperative solution is time consistent. Further, we can obtain the instantaneous sidepayment scheme which makes the imputation distribution procedure feasible. JEL Classification: F18, C73.