Question

June lives in a multi-unit apartment building and has a small dog that barks at even the smallest disturbance. Bob recently moved into a nearby unit and has had many restless nights due to the dog barking. There are two possible outcomes that are to be considered in this question: June keeps the dog and Bob continues not sleeping or June sends her dog to live on her uncle’s farm and Bob gets a blissful night’s rest.

a. (2 points) Suppose that June receives $300 of benefit from having the dog in her apartment, while Bob experiences $400 of loss due to the restless nights. Which is the efficient outcome? Explain why.

b. (2 points) June has the right to keep the pet under the terms of her lease. What is the minimum that Bob could pay to get Jillian to have the dog sent to her uncle’s farm? What is the most Bob is willing to pay? Suppose there are no transaction costs; what does Coase say will occur in this situation?

c. (2 points) Now suppose Bob does not know who owns the dog but he expects that the individual who has the dog values it at $300. If it costs $50 of Bob’s time to search for the dog; will he do so? Explain why or why not.

d. (1 point) What if it costs $150 of his time?

Answer 1

ANSWER A = BOB EXPERIENCES IS THE EFFICIENT OUTCOME.

BECASUE JUNES DOGS BARKING ONLY IN NIGHTS THEY GET $300 AND OTHER SIDE BOB HAD EXPERIENCES IN RESTLESS NIGHTS IN $400. THEN BOB PLANS FOR DAY SLEEP AND REST ALSO BOB GETS ANOTHER BENEFIT THEFI LESS WORRY.

ANSWER B = THE SITUATION WILL OCCUR TO USE HIS $50 MINIMUM TO PAY , IF SUPPOSE NO TRANSACTION COSTS THERE BOB USE NON MONETARY SCHEME TO HANDLE SITUATIONS.

ANSWER C = HE WILL NOT DO. BECAUSE BOB DOESNT WANT TRANSACTION COSTS FOR THEM.

ANSWER D - ( 3 TIMES)