The ground for negotiation: Zoning for risk reduction around hazardous plants

Celine Grislain-Letremy and Bertrand Villeneuve

Journal of Economic Behavior & Organization, 2020, vol. 180, issue C, 657-677

Abstract: The industrialists are liable for any damage they cause to neighboring households. Consequently, households do not have to pay for the risk they create by locating in exposed areas. A common and efficient self-insurance strategy for the firm is to freeze land, or to negotiate land-use restrictions. When people understand only simple messages about risk, the boundaries of the building zone are the ground for negotiation with the mayor. Typical scenarios regarding the distribution of bargaining power between the firm and the mayor are examined. In the comparative statics, we show how red zones are revised as technology or demography change. Further, we give the conditions for a purple zone (limit red zone as the population grows) and a green zone (limit inhabitable zone as the risk grows) to exist.

Keywords: Industrial disasters; Self-insurance; Externalities; Behavioral constraint; Labels in risk regulation; Land-use negotiation (search for similar items in EconPapers)
JEL-codes: D83 D91 Q53 R52 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:180:y:2020:i:c:p:657-677

DOI: 10.1016/j.jebo.2019.11.022

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