Negotiated Red Zones Around Hazardous Plants
29 Pages Posted: 8 Jun 2014 Last revised: 7 Feb 2017
Date Written: February 06, 7
The industrialists are liable for any damage they cause to neighboring households. Consequently, households do not have to pay for the risk they create by locating in exposed areas. To contain its liabilities, the firm can purchase or rent land, establishing an exclusion zone, also called a red zone. Using a microeconomic model, this paper studies the negotiations, by the firm and the mayor, of red zones in urban areas exposed to industrial disasters. First, we give a sufficient condition for these commonly used red zones to be Pareto optimal. Second, we show that the red zone is increasing with the bargaining power of the side which ultimately incurs the loss. Third, we show how red zones are revised as technology, climate, or demography change. Further, we give and explain the conditions for industrial sanctuaries (as the population grows) and city cores (as the risk grows). Typical scenarios regarding the distribution of bargaining power between the firm and the mayor are examined in parallel along the paper. In particular, we show how the variations in the red zone depend on the game played and on preferences.
Keywords: industrial disasters, land-use regulation, land-use negotiation, climate change
JEL Classification: R52, Q53, Q54, Q56
Suggested Citation: Suggested Citation