Document Type

Article

Publication Date

7-2007

Publication Title

Journal of Environmental Economics and Management

Department

Department of Economics

Abstract

One of Coase's central insights is that distinguishing between the generator and recipient of an externality is of limited value because externality problems are reciprocal. We reconsider the relevance of the identity of the generator in a model with non-contractible investment ex ante but frictionless bargaining over the externality ex post. In this framework, a party may distort its investment to worsen the other's threat point in bargaining. We demonstrate that the presence of this distortion depends, among other factors, on whether the investing party is a generator. Social efficiency can sometimes be improved by conditioning property rights on the identity of the generator: for example, assigning damage rights if the rights holder is a generator and injunction rights if the rights holder is a recipient can be more efficient than either unconditional damage or injunction rights.

DOI

10.1016/j.jeem.2006.11.004

Comments

The attached article is the preprint posted on SSRN. The publisher's final pdf version cannot be shared due to publisher copyright restraints.

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