Bargaining over natural resources: Governments between environmental organizations and extraction firms

We consider the resource-extraction policy of a government that is lobbied by an environmental organization and an extraction firm from foreign countries. To analyze this situation, we propose a sequential Nash bargaining solution: The government bargains with both lobbies simultaneously. Should this trilateral negotiation fail, it chooses one lobby for a bilateral negotiation. The disagreement point then is to bargain with the other lobby. Finally, should this second bilateral negotiation break down, the government chooses the welfare-maximizing policy.As long as cumulative extraction is low, such that stock-dependent extraction costs are also low and extraction profits are high, the environmental organization has a weak bargaining position, but it takes influence to reduce extraction. Once that cumulative extraction has increased so much that extraction profits are below a threshold, the bargaining positions change, and the environmental organization gets compensated by the extraction firm for not letting the trilateral negotiation fail.