Externalities and Coase’s theoremYou have an insane roommate who plays “Let it Go†(from Frozen) on repeat on her phone allthe time and thinks that everyone should put on pink tutus and sing very loudly and dance to it.You share your apartment with him and with three others. Three of you suffer $25 of braindamage every night from the Frozen experience; one person suffers only $5; and the insane onegets $90 of pleasure.1. Should he stop? What is the efficient outcome of the Frozen dispute?2. Would it matter who owns the stereo and holds the lease? If you hold the lease, could heget you to let him sing? If he holds the lease, could you get him to stop? Would it matterif all of you had taken Economics and wanted to free-ride?3. How would your answer to these questions change if all the anti-Frozen roommatesdeveloped great hatred of the song so they all suffer $40 of damage.Read Robert Larson, “Frackonomics†in Real World Micro, article 6.3. Who benefits and wholoses from fracking? Is fracking necessarily bad? Can we sure whether the winners’ gainsexceed the losers’ losses? How might the winners from fracking compensate the losers? Dothey? Why or why not?
Economics 103-2 -3 -4 -5Your Name:__________________________________________Professor FriedmanYour TA:____________________________________________Spring 2016Your Section Time and Day:_____________________________Date Tuesday February 16 (UMass Monday)Please write neatly!Class 8, Quiz 6: To be done at home and handed in to TA sectionNote that you may work with one other person from your TA section.Externalities and Coase’s theoremYou have an insane roommate who plays “Let it Go†(from Frozen) on repeat on her phone allthe time and thinks that everyone should put on pink tutus and sing very loudly and dance to it.You share your apartment with him and with three others. Three of you suffer $25 of braindamage every night from the Frozen experience; one person suffers only $5; and the insane onegets $90 of pleasure.1. Should he stop? What is the efficient outcome of the Frozen dispute?2. Would it matter who owns the stereo and holds the lease? If you hold the lease, could heget you to let him sing? If he holds the lease, could you get him to stop? Would it matterif all of you had taken Economics and wanted to free-ride?3. How would your answer to these questions change if all the anti-Frozen roommatesdeveloped great hatred of the song so they all suffer $40 of damage.Read Robert Larson, “Frackonomics†in Real World Micro, article 6.3. Who benefits and wholoses from fracking? Is fracking necessarily bad? Can we sure whether the winners’ gainsexceed the losers’ losses? How might the winners from fracking compensate the losers? Dothey? Why or why not?
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