Jones and Smith live in the same apartment building. Jones loves to play his opera recordings so loudly that Smith can hear them. Smith hates opera. Jones receives $100 of benefits from his music and Smith suffers $60 of damages. a

Question

From an efficiency perspective, should Jones be allowed to play his opera CDs? b. Suppose the apartment building does not have any rules about noise. Jones and Smith can bargain at zero cost. Will they reach an agreement where Jones gives up his beloved operas? c. Now suppose the apartment building passes a rule that says residents are not allowed to play music their neighbors can hear if any of the neighbors object. As before, Jones and Smith can bargain at zero cost. Will Jones be allowed to play his music?

Answer 1

a. The benefits from the music ($100) are greater than the costs ($60). Therefore, from an efficiency perspective Jones should continue to play his recordings.
b. The largest offer Smith would make to Jones to persuade Jones to give up his music would be $60 . The smallest offer Jones would accept is $100 . Therefore they will not reach an agreement where Jones gives up his operas.
c. The largest offer Jones would make to Smith to persuade Smith to allow him to play his music is $100 . The smallest offer Smith would accept is $60 . Therefore they will reach an agreement where Jones continues to play his operas.