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Journal of Industrial Economics and TradeKIET Korea Institute for Industrial Economics and Trade

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Journal of Industrial Economics and Trade(JIET)」 is a biannual periodical. It contains creative theoretical and empirical researches and papers that will contribute to the economic and industrial policy making. Submissions are cordially invited.

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Endogenous Environmental Damage and Its Impact on Rent Dissipation

Author Park, Sunghoon Date 2020.12.31 Series
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Previous studies on environmental conflicts show that social welfare(rent dissipation) increases(decreases) when polluted victims are leaders. Unlike previous studies, this study considers the change of environmental damage according to the output a firm produces and examines whether the results of prvious studies are maintained.

 

This study analyzes environmental conflicts considering four models: (i) Cournot environmental conflict, (ii) Stackelberg environmental conflict, (iii) environmental conflict with asymmetric information, and (iv) environmental conflict with externalization. In all three conflicts except the conflict with externalization, a firm chooses outputs that internalize the expected losses from environmental conflicts at its own costs. In the Cournot environmental conflict, a firm and a pollution victim chooses their effort levels at the same time to win the contest for indemnity due to environmental pollution. In the Stackelberg environmental conflict, a polluted victim first chooses her effort level, and in turn, a firm chooses its effort level. In the conflict with asymmetric information, Cournot environmental conflict arises when a polluted victim is not aware of the product output chosen by a firm.

 

The main conclusions of this study are as follows. First, internalization of environmental conflict reduces rent dissipation. Second, in Cournot environmental conflict, the net profit of the firm is higher and the net loss of the polluted victim is smaller than those of Stackelberg environmental conflict. Finally, rent dissipation is the lowest in the Cournot environmental conflict. This result is different from the results of previous studies.?