If you’ve lived on Chancellor St., you’ve experienced the lovely bedtime music including, “Hotel Room Service” by Pitbull and “No Hands” by Roscoe Dash and Waka Flocka Flame. Just what you want to be listening to as you fall asleep before your 9:00am Public Choice class, right?
Well, when my roommate and I moved out of dorms and onto Chancellor St., we immediately decided that this was not what we wanted to listen to as we fell asleep. My roommate was set on a Hatch sound machine. I, however, thought we should first try ear plugs or even just playing sound from our phones to save money. She was convinced these methods would not work and begged me for a week to go in on the sound machine with her, but I held out, determined that she would break before me. And eventually, she did. One night I came home to our room with a brand new, wonderful, Hatch sound machine (which I really wanted all along). But this way I didn’t have to pay for it, and I would still reap the benefits.
The music from the bars was a negative externality. The bars have the property rights to play their music late into the night on any night. My roommate and I had the choice to internalize the negative externality into lack of sleep or buy a sound machine, opting to spend money rather than hours of sleep to internalize the externality. I opted for a third option: my roommate spends the money, and I free ride.
1 comment:
In order to internalize the negative externality, the private marginal cost faced by the firm (the bar playing music) needs to be increased in order to reflect the external marginal cost they're imposing on society. Once PMC is increased to equal SMC, the equilibrium quantity will fall and become allocatively efficient. You and your roommate sacrificing sleep or buying a sound machine does not affect the private marginal cost faced by the bar, and will have no effect on how loud or how much they play their music late at night.
An example of internalizing the externality in this scenario would be the government fining the bar based on how loudly they play their music late at night. The fine would increase with the decibel level and how late the music is being played, representing the external marginal cost faced by residents in the area due to lack of sleep or any other negative effects of the music on their welfare. Facing a higher private marginal cost of playing music, the firm would decrease how much music they play late at night and quantity would decrease to the socially optimal amount.
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