Bargaining Around Cost-Benefit Standards

Injurers often purchase the property of potential victims to avoid liability or to comply with regulations. This paper shows that injurers subject to cost-benefit standards could profit from buying out victims even if they attach no value to the victims' property. Because buyouts allow injurers to take fewer precautions, a buyout of one victim produces a negative externality for the remaining victims. Injurers can consequently exploit victims, and thereby reduce social welfare, by adopting a divide-and-conquer strategy or by negotiating with victims sequentially. Perhaps surprisingly, buyouts may reduce social welfare and victims' joint profits even if victims make simultaneous or sequential take-it-or-leave-it buyout demands to the injurer