Threat Positions and the Resolution of Environmental Conflicts

Jerrell Richer and John Stranlund ()

Land Economics, 1997, vol. 73, issue 1, 58-71

Abstract: In the classic externality problem of one polluting firm and a passive victim we consider bargaining when the firm has the prior right to pollute. Assuming that a threat made prior to bargaining is perceived to be credible, the firm will commit itself to an output level that is higher than both the efficient and profit-maximizing levels. In an extension, we assume that the firm makes an irreversible investment in production capability to give its threat credibility. We show that a credible investment must be greater than or equal to the profit-maximizing investment.

Date: 1997
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