Associate Professor, Konan University, Japan
As the scale of economic activities continue to grow, the burden on the environment for the surrounding region increases, so it has become necessary for firms and the regional community to have bilateral negotiations taking economic activities and environmental issues into consideration in order to find an efficient solution. This paper attempts to use the Nash bargaining solution concept between firms and the surrounding residents to analyse the optimal solution when considering the firms’ economic activity and environmental performance. It includes a model to analyse the impact that a firm’s environmental performance has on improving its economic performance. It also takes into consideration the effects that an improved environmental performance will have on the regional residents, through reduced pollution, employment opportunities and tax revenue. The results for both cases, when environmental regulations are absent and when they are enforced, find that the party that receives the greater benefit will transfer income to the other party which supports the benefits principle. Thus, in order to examine the mechanism of income transfer between firms and the regional residents, it will be important to comprehensively consider the affect that firms’ environmental performance have on their economic performance, the environmental cost for firms to improve their environmental performance and the benefits to regional residents from environmental regulations.
Keywords: Environmental performance, Economic performance, Bargaining game, Income transfer
JEL classification: M2, Q5, R1