(Consider This) Darcy and Rachel live down the hall from each other in the same dorm. Darcy likes to play her music loudly down the hall, and Rachel ﬁnds the music annoying. A Coase theorem
Solution for this problem would be for
A) Darcy and Rachel to negotiate a mutually agreeable level of volume and/or selection of music.
B) the director of housing to impose a ﬁne on Darcy whenever she plays her music too loud.
C) the dorm government to set a payment schedule by which Rachel would compensate Darcy for making her play her music at a lower volume.
D) the college to ban the playing of music in dorms.

Question

Quizplus · Accepted Answer

The Coase theorem suggests that if property rights are well-defined, bargaining can lead to an efficient outcome regardless of initial allocation. In this situation, Darcy has the right to play her music in her own living space, but Rachel also has the right to a reasonable level of peace and quiet. By negotiating with each other, they can come to an agreement that satisfies both of their preferences. Imposing a fine on Darcy or banning music in the dorms would not necessarily lead to an efficient outcome and could create resentment or animosity between Darcy and Rachel. Setting a payment schedule would also likely be less efficient than a negotiated solution.

(Consider This) Darcy and Rachel Live Down the Hall from Each