Mob Boss Negotiations

This past Wednesday was truly a difficult day for me. Around 7 o'clock last night, I finished the greatest tv show that was ever made, The Sopranos. I still haven't gotten over the fact that I've actually finished the show yet. I can sense a deep void forming in the entertainment compartment of my heart. Also, don't ask me about the final scene. I haven't begun to form even an ounce of an intelligent opinion on the matter. Nevertheless, I found solace in the fact that a scene from the final season has inspired a blog post for our class. Let me set the stage.

Tony Soprano, the boss of the Soprano crime family, enjoys partial ownership in an illegally-run, legal construction business. In true criminal fashion, the business cuts corners whenever possible. They hire cheap illegal labor, fake their permits, and most importantly in this episode, they illegally  dump their demolition waste. With the help of one of the Five Families of New York, the business improperly disposes their waste in the Lupertazzi family dumpsite, while collecting checks from the government for "following" the EPA's regulations on waste management. The operation was tremendously lucrative, that is, until the Boss of the Lupertazzi family learns of the asbestos in the construction waste.

Under this scenario, the social marginal cost of waste production is above the private marginal cost to the Soprano family. The asbestos from the demolition waste creates a negative production externality to the Lupertazzi family and their dumpsite, particularly in regards to the health of their employees. As a result, the Soprano family is producing too much waste and social efficiency is not maximized. In an effort to reach a true Coasian solution, Phil Leotardo - the defacto boss of the Lupertazzi family - offers to let the Soprano family continue to dump their construction waste in exchange for 25% of all construction profits. With the payment, the PMC curve would move up to the SMC curve, and social efficiency is maximized. Tony, however, mulls the offer over, counters with 15% to no avail, and ultimately determines that the 25% cost is not worth it to him. No deal is to be had.

Unable to internalize the externality, we would all expect Tony to find another dumpsite or shutdown the business altogether. Well, he did find another dumpsite (0:16) - and managed to avoid incurring any extra cost.