WWRC 91-12
Cooperative and Noncooperative Protection Against
Transferable and Filterable Externalities
Abstract
Given self-protection from an undesirable environmental externality, we examine.
under several conditions, the efficiency properties of cooperative and noncooperative
behavior. We demonstrate that if self-protection can transfer the externality to another agent,
then noncooperative behavior will lead to overprotection. If self-protection filters or dilutes
the externality, then noncooperation leads to underprotection. In addition, overprotection will
worsen if an agent with more relative power is allowed a first-mover advantage or if the
damage function is elastic and transferability is uncertain. Finally, a reduction in uncertainty
about transferability will accentuate overprotection if the damage function is inelastic. Our
results suggest that coordination of protection activities among agents will enhance the overall
gains from environmental policy in the European Single Internal Market of 1992. Coordination
minimizes the costs of environmental protection, thereby reducing the public credibility of
its foes.
Key words. Self-protection, externality, transferability.
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