Q5 – Regional Science Inquiry

Kenichi SHIMAMOTO

Associate Professor, Konan University, Japan

kenichi@center.konan-u.ac.jp

Abstract

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
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Kenichi SHIMAMOTO

Associate Professor, Hirao School of Management, Konan University

kenichi@center.konan-u.ac.jp

Abstract

The greenspace agreement is an effective method to promote the conservation and creation of greenspace. In this paper, the mechanism of the formation of the greenspace agreement is analysed using the coalition game. As a result, it was identified that the greenspace agreement requires a certain level of supporters in order to be formed and the most desirable situation is when there is a universal agreement. It also identified the possibility of the existence of free riders which could prevent a unanimous support of the greenspace agreement. The number of supporters of the greenspace agreement and number of free riders are dependent on the size of the external diseconomy caused by the lack of consideration for greenspace, the government’s enforceability of taxes on the diseconomy and the decline in land prices due to the external diseconomies from the neglect of greenspace. Furthermore, it was found that it was also influenced by the residents and stakeholder’s risk assessment based on their view towards the government’s enforceability of taxes and the rate of decline in land prices.

Keywords: Greenspace agreement, coalition game, free rider, external diseconomy

JEL classification: H2, Q5, R0