A cooperative game for siting noxious facilities: theory and experimental design

The siting of noxious facilities is usually a reason for conflict: as a society we want them, but as individuals (and often as communities) we do not want them close by. Faced with this problem economists have used several methods such as lotteries, auctions or insurance policies. However, all those mechanisms have theoretical shortcomings. Therefore, we propose a new approach based on voluntary exchange. In order to reduce transaction costs, we introduce an arbitrator that proposes surplus distribution and a host community. The main question in this paper is to determine which distributions it has to propose to quickly reach an agreement. To this end, a new asymmetric cooperative game is constructed and three classical solution concept are studied after adaptation to the asymmetric context of the game. Finally, we explore the predictive power of these solutions by implementing laboratory bargaining experiments.