The paper is an attempt to interpret trans-boundary water disputes with the help of scarcity value, which is the value that could have been generated if the limit on water availability could be relaxed by one unit. Scarcity value measures the degree of deprivation and creates the basis for disputes. This hypothesis has been applied in this paper to the disputes over water use for irrigation in the Cauvery basin between the states of Karnataka and Tamil Nadu in South India. On the basis of the historical data for the area under paddy cultivation in the two states, the paper shows that such disputes are not clearly based on physical scarcity of water but are a temporal coincidence of demand based on scarcity value. This means that enhanced supply would not be the correct approach to the resolution of disputes. New economic instruments based on scarcity value may provide a more objective picture of the disputes and hence help in their amicable resolution.

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