Sharing a Multi-National Resource through Bankruptcy Procedures

Bankruptcy procedures are known as fair division methods applicable to monetary problems in which the total amount of the asset is not sufficient to cover the sum of the creditor's claims. These methods can be also used to solve natural resource allocation problems with the same characteristics in which the bargainers are willing to follow a cooperative approach rather than a competitive attitude. To show the applicability of these methods in water resources allocation problems, this study builds a bankruptcy model for the Caspian Sea negotiations in which five coastal states of Azerbaijan, Iran, Kazakhstan, Russia and Turkmenistan have been negotiating since 1993 without coming up with any agreement neither on the ownerships of waters, nor the oil and natural gas beneath them. In this problem, the total value of oil and natural gas which are currently claimed by the five littoral states is approximately 32 percent higher than the total value of proven and possible oil and gas located in the seabed of the Caspian Sea. The problem is how to determine a fair resource allocation which is associated with the legal status of the Caspian Sea. The developed bankruptcy model is solved with four different allocation rules including Proportional rule, Constrained Equal Award (CEA) rule, Contested Garment Principle, and Adjusted Proportional (AP) rule. Based on the shares of the bargainers under these rules, each party can rank the possible sharing methods. Finally, the study comes up with some recommendations on how to allocate this multi-national water resource to the involved parties based on claims and preferences.