Environmental Conflicts with Reimbursement for Citizen Suits

Conflicts between a firm and a citizens′ group can arise over environmental regulation or enforcement. The group and the firm compete, often in the courts, over the rewards of varying levels of regulation and enforcement. This paper explores the efficiency consequences of a contest between a firm and a citizens′ group where the group′s legal expenditures are reimbursed if victorious. Relative to symmetric reimbursement, we demonstrate that asymmetric reimbursement reduces the total amount of effort expended. In addition, if reparations exceed 50% of the group′s legal expenses, a firm will move first and invest zero effort. We also consider the impact of asymmetric rewards and ability.