Externalities of Dishes

I live in Lambeth, and, because our kitchen does not have much space, we have a jank setup for our dish drying. We toss a mat onto two burners on the stove beside the sink, and we use it to dry dishes. Now, say I wash my dishes and I place them on the mat to dry (sometimes its a lot of dishes). My PMC is the opportunity cost of the time washing dishes, and then my PMB is the clean dishes once they dry. However, by filling up the mat I create a negative production externality by leaving dishes on the mat that my roommates can no longer use. For simplicity's sake let's say I that I have one roommate, but the third paragraph in this blog points out how even small externalities--like those involved in dishes--can put strain on our day to day lives.

Coase might have an elegant solution to this problem involving M1, but I think my solution might be better. First, Coase: if I am liable for removing dry dishes by house rules, I can pay my roommate: let's say $10 dollars (if that happens to be the bargained price) to let me keep the dishes on the mat (and then he can remove them himself). If I am not liable for removing my dishes we don't have any house rules, and we are stupid, then my roommate can pay me those $10 and I will remove the dishes. Either way, the externality is internalized, and the efficient output is reached. Since my roommate is not an economist, this solution will be too much Econ for him to handle and is not optimal (Does his private marginal cost curve factor in the cost of doing Econ!? 'Tis a shame). Instead, my solution: the payment will occur in the form of exchanging dish removal duties. So he removes my dishes, and I remove his dishes, and we both correct each other's externalities. Only thing is, it becomes more complicated when you add two more roommates to the equation. Luckily, we are all friends and get along well, so transactions costs should be minimal. I think I have to call a house meeting now...

Coasian Solutions to Vaccines

 The recent political turmoil over COVID vaccines provides a good link between the Friedman reading and our current analysis of the Coase Theorem. Friedman wrote that “the use of political channels, while inevitable, tends to strain the social cohesion essential for a stable society. The strain is least if agreement for joint action need be reached only on a limited range of issues” (23). Clearly, the use of government vaccine mandates (regardless of your stance on them) relates intimately to this. The use of political channels to mandate vaccines was an instance of forced conformity that led to enormous strain on the social fabric: a host of papers have been investigating the increase in political polarization and other unintended consequences of the mandates. Please find two linked below.

https://gh.bmj.com/content/7/5/e008684

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4022798

Coasian solutions to vaccines may have been more prudent and may be more attractive in similar scenarios in the future. But what would such solutions look like? This is an instance of a positive consumption externality. It seems clear first of all that the "property rights" in this scenario belong to those against the vaccine (the non-vaccinated)—as free citizens, they have legal sovereignty over their bodies. Therefore, the burden would be on those affected (the pro-vaccine) to entice the non-vaccinated to receive the vaccine. It at least plausible that the pro-vaccine group could privately extend compensation to the non-vaccinated group and entice all or most of them to receive the vaccine.

Some clear problems must be taken into account, however. The PMB of a vaccine is likely very low for the non-vaccinated (since they have no desire to receive it), and the SMB is likely very high (since it will protect society from disease). If these two assumptions are correct, then the EB in this scenario is going to be quite large. This means that paying the non-vaccinated to receive the vaccine could ultimately be a very expensive undertaking, since the price each vaccine is worth to the pro-vaccine group is about the value of the EB. Moreover, the non-vaccinated generally are so because of deep-seated political or religious beliefs. This means that convincing them will take an enormous amount of negotiation and compensation (if they are even willing to compromise at all). Lastly, as Gruber mentions repeatedly in the reading from chapter 5, there would be a host of difficulties with conducting negotiations when the issue exists on such a large national (or even international) scale and involves so many individuals (both non-vaccinated and pro-vaccine).

Local Government Externalities and Coasian Institutions

     I interned for Henrico County Managers Office this summer doing white paper writing. In the course of my internship, having already read Coase's Theorem, I designed a program to be administered by the county that served as a "Coasian" institution. We had a problem with tree overgrowth on elderly individuals' property that negatively impacted adjacent property owners and their safety.  Therefore, the program reduced the transaction and search costs of the individuals to fix this problem as well as incentivizing businesses to help fix the problem. In early drafts of the paper, I had even included "Coasian Solutions" where adjacent property owners could go in on a contract to fix the problem, but with a clause that stipulated it wouldn't be fixed unless all parties agreed to prevent a hold out or free rider issue. 

    There was a producer (in this case the property owner) who had property rights, but one who was producing externalities by their inaction. The SMC > PMC creating clear dead weight loss. The correction, however, in my program, worked rather interestingly. The county would give a tax credit to a tree company to rectify the issue (similar to other county ordinance). Because there was also a slight cost to the producer (the elderly property owner) in terms of safety, they were partially incentivized to seek help through the program. The company would be compensated in tax credits (essentially a payment that made PMC = SMC) and the externality would be rectified.