The value and applicability of bargaining in an intergenerational setting

This paper considers the effectiveness of a variation of Coasian bargaining as a policy instrument for internalizing one or multiple intergenerational externalities. The variation involves appointing a contemporary party to represent the interests of the affected parties who are currently unable to represent themselves. Potential criticisms of such a policy are considered and addressed, and precedents to such a policy are put forth. To test the value of such a policy, a two-period model in which two externalities exist in the production/consumption decisions and with representative agents is used to compare the welfare effects of four scenarios: 1) Agents in each period optimize their period-specific utility, 2) a benevolent social planner chooses allocations in both periods to maximize a social welfare function, 3) the externalities are internalized using a bargaining policy, and 4) the externalities are internalized using a tax and subsidy policy. I find that, contrary to general consensus in the literature, Coasian bargaining can be adapted in such a way as to make it applicable in an intergenerational framework.

► I argue that bargaining policies can be used to address intergenerational externalities. ► To do this, contemporary parties must represent the interests of the unborn in negotiations. ► I present a 2-period model in which multiple externalities exist between the periods. ► The model compares a bargaining policy to a tax and subsidy policy for improving social welfare. ► The welfare outcomes are similar for these policies.