This past Sunday night, like most Sunday nights, my roommates and I like to watch a movie after everyone is back from libraries, or whatever other commitments they have. Usually we watch a movie that none of us has seen, but every now and then we watch a movie that someone has—that is what happened this past Sunday.
Usually, this isn’t a problem, but this time, whether others watching noticed the economic relevance or not, one of my roommates proposed a strong negative consumption externality. Having seen the movie before, he would quote lines as they were being said and alerted the room when something important or funny was about happen. His interruptions were distracting and took away from my experience as well as other's, I'm sure.
In taking Public Choice, I knew I could offer him something of value to internalize this externality. However, living with him meant that the transaction costs were not zero and my offer might cause tension or animosity between us. Unfortunately, the high transaction costs in this situation made a Coasian solution not an ideal one for me, and I decided to bear the costs myself.
I thought about what movie theaters do to prevent these negative consumption externalities. Just like my experience, they do not rely on Coasian solutions to internalize externalities. Instead, they use the equivalent of government intervention to enforce rules that try to inhibit any externalities at all.
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