The Externalities of Dancing

Two weekends ago, I traveled up to New York City for a music festival. The decision to make a 11-hour round trip at the end of the first week of classes was probably unwise, but I was able to see the magic of the Coase theorem in action. Though attending concerts is fun and is correlated with good health, attendees do not always have the greatest time. This is because of the externalities generated from the production of something that usually makes music quite enjoyable: dancing. According to concert etiquette, people should be mindful of those around them when they decide to bust some moves, as their aggressive motions can block the views of others or make them physically uncomfortable. This is quite problematic, as excited concertgoers frequently fail to consider how their dancing might negatively affect other people. As a result, the private marginal cost of dancing is less than the social marginal cost of its production and, thus, people dance more wildly than is socially optimal.

Such was the case during one of the performances that I witnessed at the festival. During the set, a man in my part of the crowd was very aggressively jumping up and down and waving his arms, much to the annoyance of the strangers next to him. The people around him asked a security guard to tell him to calm down, but the staff member insisted that the dancing man was not liable for any damage because he was not physically touching anyone near him and, therefore, had a right to continue his dancing.

Luckily, the power of economics was enough to rectify the situation and avoid any sort of major confrontation. After about a half hour of being annoyed, one of the people near the dancing man offered to buy him a beer in exchange for him controlling his movements. With the cost of this beverage now internalized, the dancing man's private cost of producing his moves increased. He, then, determined that his marginal benefit of wildly dancing was not greater than the cost of dancing plus the cost of a forgone beer and calmed himself down. Thus, just as Coase theorized, with rights clearly established, even without public intervention (from the concert staff), a socially optimal level of dancing was able to be reached.