Game Theory Analysis of Competition for Groundwater Involving El Paso, Texas and Ciudad Juarez, Mexico

We examine the potential gains from cooperation in the withdrawal of water from the Hueco Bolson aquifer that provides municipal water supply for El Paso, Texas and Ciudad Juarez, Mexico. The aquifer lies beneath the international border, and both cities operate independently regarding pumping rates and withdrawals. We estimate the gains by comparing four scenarios in a dynamic setting: 1) a status quo scenario in which both cities continue extracting groundwater as they are at present, 2) a Nash non-cooperative game scenario, 3) a Nash bargaining scenario, and 4) a scenario that involves maximizing the sum of net benefits in both cities. All scenarios, including the non-cooperative game, provide a longer useful life of the Hueco Bolson aquifer than does the status quo. In the Nash bargaining scenario, both cities gain from cooperation and the sum of net benefits approaches the maximum that can be obtained by maximizing that value explicitly.