Internalizing environmental damages and endogenous reimbursement in environmental conflicts: a game-theoretic analysis

Sung-Hoon Park () and Chad Settle ()
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Sung-Hoon Park: Chosun University
Chad Settle: University of Tulsa

International Review of Economics, 2022, vol. 69, issue 4, No 5, 547-569

Abstract: Abstract Environmental contest models typically make two standard assumptions, reimbursement rates and environmental damages are exogenously determined. Previous research that makes these assumptions conclude the equilibrium total effort level with reimbursement is greater than if reimbursement is disallowed. Assuming a regulator determines reimbursement rates and a firm controls environmental damages, this research finds different results, some counter to previous studies. A regulator can obtain reimbursement rates that minimize the social cost as the sum of environmental damage and abatement cost. In particular, we show that the reimbursement rates can induce the environmental conflicts to go to settlement. We also show that even if environmental conflicts go to trial, asymmetric reimbursement can reduce the total effort level caused by the conflicts as well as the total social cost as the sum of the social cost and the expected loss of the firm minus the expected payoff of the citizens’ group caused by the conflicts.

Keywords: Endogenous reimbursement; Environmental conflicts; Internalizing reward; Social cost; Total effort level; Total social cost (search for similar items in EconPapers)
JEL-codes: C72 D60 Q53 Q58 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s12232-022-00405-4

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