An Economic Analysis of Legal Rules for Transboundary Pollution

Abstract: This paper analyzes interjurisdictional bargaining over transboundary pollution. It focuses on the difference between bargaining by representatives of political jurisdictions over the the resolution of pollution disputes versus bargaining by individuals. We show that under quite general assumptions regarding the way that voter preferences are represented by politicians, the likelihood of efficient resolution of interjurisdictional pollution disputes is quite likely when jurisdictions are symmetric, but not likely when jurisdictions are asymmetric with regard to experiencing both the costs and benefits of polluting activities. This result may explain why courts have been reluctant to intervene to clearly resolve interjurisdictional pollution disputes, and why legislative resolution has only been possible via uniform allocation of tradeable rights to pollute.