Sequential bargaining,external effects of agreement,and public intervention

In some bargaining situations, agreement has implications for agents beyond the parties involved, and if so, delays in reaching an agreement or failing to reach an agreement, when this would be profitable, may imply significant welfare losses. The question raised in this paper is whether the intervention of a government, who has a positive valuation of agreement and therefore offers a subsidy, will reduce such delays and inabilities to reach agreement? Based on a perfect Bayesian equilibrium in a sequential bargaining game with intervention, we show that in equilibrium intervention always reduces the ex ante equilibrium inefficiency and conditionally reduces expected delays in trade. However, for intervention in the form of a subsidy to take place, the aggregate of the seller’s reservation price and the externalities must be (almost) as high as the buyer’s upper valuation limit.     

The environmental Kuznets curve revisited once again

In the past decade, considerable attention has been paid to the hypothesized inverted U-shaped relationship between income level and environmental quality, known as the environmental Kuznets curve (EKC). An overview of empirical studies of this relationship finds limited evidence for an EKC. The strongest evidence is with urban SO2 concentrations. A close examination of a seminal paper in this field, which first reported the relationship between income level and SO2 concentrations, finds the relationship weak at best. Given the limited evidence for an EKC, why is it still accepted as fact? This article suggests that it both serves the interests of powerful groups in society, and it corresponds to a notion that wealthy people care more about environmental quality than do poor people.