Question

George and Stan live next door to each other. George likes to plant flowers in his garden, but every time he does, Stan’s dog comes over and digs them up. Stan’s dog is causing the damage, so if the social optimum is to be achieved, the only solution is to have Stan pay to put up a fence around his yard to confine the dog. Do you agree or disagree? Explain.

Answer 1

If there are leash laws then this would be true. Stan would either need to keep his dog on a leash or put up a fence. In general, it is possible for the two parties to bargain and come up with a solution that will benefit both of them. They could for example split the cost of the fence. Social Optimum is not require that Stan pay for the fence. It merely requires that Stan and George negotiate over how best to address the problem and come up with a solution that will work for both of them.