In the classic externality problem of one polluting firm and a passive victim we consider bargaining when the firm has the prior right to pollute. Assuming that a threat made prior to bargaining is perceived to be credible, the firm will commit itself to an output level that is higher than both...

Two nations seek a cooperative agreement to control bilateral flows of an industrial pollutant. From previous noncooperative production choices, the nations hold a certain amount of sunk capital. If production requires relatively large investments in sunk capital, the nations may find that they...