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Sunk Capital and Negotiated Resolutions of Environmental Conflicts

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  • John K. Stranlund

Abstract

Two nations seek a cooperative agreement to control bilateral flows of an industrial pollutant. From previous noncooperative production choices, the nations hold a certain amount of sunk capital. If production requires relatively large investments in sunk capital, the nations may find that they cannot negotiate production quotas that improve on their noncooperative choices. When the nations find cooperation worthwhile, negotiated levels of production will be higher than in the absence of sunk capital. Furthermore, both nations are motivated to attempt to manipulate the terms of the agreement by making strategic investments in sunk capital prior to its completion.

Suggested Citation

  • John K. Stranlund, 1999. "Sunk Capital and Negotiated Resolutions of Environmental Conflicts," Land Economics, University of Wisconsin Press, vol. 75(1), pages 142-155.
    • Handle: RePEc:uwp:landec:v:75:y:1999:i:1:p:142-155
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    Cited by:

    1. Mads Greaker & Cathrine Hagem, 2014. "Strategic Investment in Climate Friendly Technologies: The Impact of Global Emissions Trading," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 59(1), pages 65-85, September.
    2. Tim Swanson & Ben Groom, 2012. "Regulating global biodiversity: what is the problem?," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 28(1), pages 114-138, Spring.
    3. Mads Greaker & Cathrine Hagem, 2010. "Strategic investment in climate friendly technologies: the impact of permit trade," Discussion Papers 615, Statistics Norway, Research Department.
    4. Stranlund, John K., 1999. "Bargaining to preserve a unique ecosystem: the role of anticipatory investments to establish stronger bargaining positions," Ecological Economics, Elsevier, vol. 31(3), pages 425-437, December.

    More about this item

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General

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