By Kai Yu Lee

Under efficient Coasian bargaining, the recipients of an environmental harm are compensated by the polluter for every unit of the nuisance that they bear. When those doing the negotiation are also those bearing the costs of the environmental harm, this will lead to an efficient outcome in which the benefits and social costs of the polluting activity are equalized on the margin. Transaction costs frequently lead to bargaining being conducted by government representatives on behalf of their constituents; e.g., county officials may bargain with polluting firms over payments in exchange for siting facilities within their borders. When populations are highly segregated, representatives can more easily target the costs of polluting facilities to a politically weak minority while the majority enjoys the Coasian compensation. We test this theory using information on three decades of county-level polluting employment and
a measure of racial/ethnic dissimilarity. Results confirm the hypothesis that segregation facilitates the siting of polluting facilities, suggesting an important source of procedural environmental injustice.

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Advisor: Christopher Timmins | JEL codes: Q52, Q53, Q56, R3, R58