How will different perspectives impact steps taken to protect environmental quality?
To better explain the dynamic, a hypothetical town can be used as an example. In this town, the entire labor force is employed by one business that produces dangerously toxic emissions. The owner of the business lives far away, so they do not experience the negative consequences of the emissions. In this scenario, a conflict of interests exists over the emission levels and wages; both citizens and the business have some degree of bargaining power in the situation. Citizens are able to leave the town, causing the business to provide desirable environmental quality and wages as a “leave town condition;” similarly, the business also needs to make sure that profits flow in at a rate that would keep the business open, so the “leave town condition” cannot be too high.

What does the relationship between environmental quality and wages look like?
One way to measure the relationship between environmental quality and wages is to examine an indifference curve; in the case of the hypothetical town, the curve would represent conditions that would barely manage to convince a person to stay. As wages increase, the quality of the environment decreases as the business can gain more profit if they are more freely able to dispose of materials.

How does the marginal rate of substitution for citizens differ from the marginal rate of substitution for the business?
The citizen’s MRS can be found by taking the slope of the indifference curve or dividing the marginal utility of wages by the marginal utility of environmental quality. A small MRS, a very flat slope, would indicate that citizens do not care much about wages but are concerned about the poor environment. A large MRS, a steeper slope, indicates citizens may care more about wage increases. The business’ MRS would be the slope of its shutdown conditions, the wages, and environmental quality that would barely keep the business open or the marginal cost of higher wages over the marginal cost of environmental quality. A steep slope indicates a small marginal cost of environmental quality, meaning it is cheap to avoid emissions and create a better environment. However, if the business opts for a higher quality environment, the trade-off is lower ages in order to maintain profit.

What happens when the business has all the bargaining power?
When the business has all the bargaining power, it may propose a take-it-or-leave-it ultimatum. In this situation, the business will be freely emitting toxic materials and maintaining below-shutdown-level costs at the expense of reduced environmental quality. The difference between the environmental quality with the least amount of emissions and the environmental quality under the business’ ultimatum can manifest as cost reductions and profits or as health dangers for citizens.

What happens when the people have all the bargaining power?
If citizens had all the bargaining power, they would likely opt for a choice that has the highest possible environmental quality with wages at some quantity, putting them on their highest possible indifference curve while remaining within shutdown conditions.

How may mutual gains be shared between the business and the citizens?
The difference between the highest amount of environmental quality and the environmental quality, if the business has all the bargaining power, represents the mutual gains shared by the citizens and businesses. The way mutual gains are split will depend on each entity’s bargaining power. A way citizens could boost their bargaining power would be to act together as a group.

What impacts bargaining power?
If the citizens work together through a local council, that council may not have enough enforcement capacity to enforce emission limits. If the issue is taken to court, there might not be enough information to verify the levels and dangers of emissions, meaning the business could just ignore emission limits. If citizens do not agree with each other on emission dangers, legislators that manage emission limits may not be re-elected. The business could lobby in order to avoid blame and avoid limits being placed. The business itself may be legally allowed to create as many emissions as it’d like.

Marginal utility: gained benefit from consuming one unit of a good/service

Citizens’ marginal rate of substitution: marginal utility of wages divided by marginal utility of environmental quality

Business’ marginal rate of substitution: marginal cost of hgiher wages over marginal cost of environmental quality

Bargaining power: amount of control group has when trying to reach agreement with another group

Mutual gain: something earned by both parties

Different perspectives can significantly impact the steps taken to protect environmental quality. In a hypothetical town where the labor force is employed by a business that emits toxic emissions, conflicts of interest arise between citizens and the business. The relationship between environmental quality and wages is interconnected, where higher wages often come at the cost of poorer environmental conditions. The marginal rate of substitution (MRS) differs between citizens and the business. Citizens' MRS represents their trade-off between wages and environmental quality, indicating how much they value each. A small MRS suggests citizens prioritize a better environment over higher wages, while a large MRS indicates a greater emphasis on wage increases. The business's MRS reflects the trade-off between higher wages and lower environmental quality, with a steeper slope indicating a lower marginal cost of environmental quality. When the business has all the bargaining power, it can impose ultimatums that prioritize its profits over environmental quality. This leads to increased emissions and reduced environmental conditions, potentially endangering the health of citizens. Conversely, if citizens have all the bargaining power, they would aim for the highest possible environmental quality within acceptable wage levels. The sharing of mutual gains between the business and citizens depends on their relative bargaining power. The difference between the highest achievable environmental quality and the actual level of environmental quality under the business's ultimatum represents potential mutual gains. The distribution of these gains will be influenced by the bargaining power of each party. Citizens can enhance their bargaining power by organizing as a collective group, such as a local council. Bargaining power can be influenced by various factors. For example, a local council may lack enforcement capacity to ensure compliance with emission limits. Insufficient information on emission levels and dangers can hinder legal actions. Disagreements among citizens about the severity of emissions can affect the re-election of legislators responsible for emission limits. Lobbying efforts by the business can also influence decision-making processes. Additionally, legal regulations may permit the business to emit without restrictions, impacting the balance of power.

An example of a business engaging in an environmentally damaging practice would be the DuPont contaminating water resources their their factories.