Before every UVA football game, my house sells over 30 spots of parking to customers who are willing to pay (in my opinion) unreasonably large sums of money in order to have a shorter walk to the stadium. Part of the reason my house is able to sell so many spots is that we share a backyard with our neighbors. They don’t sell parking for the game, but still use most of the parking spots throughout the week. This poses no external cost on us from Sunday-Friday, but on Saturdays it hinders our ability to efficiently pack in cars for parking, costing us roughly $100 in lost revenue. In response to this, I attempted to bargain with my neighbors, offering them $50 to move their cars to the corner of the yard for the duration of the game. I believed this would be a Pareto-efficient move, and yet I was left on read.
Analyzing my situation from the perspective of Coase’s theorem, one would expect that an efficient outcome would be bargained to if property rights are clearly defined and transaction costs are low. My lease doesn’t have any specific designations over how the spots are split up in the backyard, making property rights unclear. Transaction costs are also a reality in my situation, as my neighbors simply don’t want to negotiate despite the possibility of a mutually beneficial transaction. My situation reveals the practical limitations of Coase’s theorem; Even in a case where a limited number of parties are involved and it’s easy to quantify the effects of the externality, private bargaining still doesn’t happen due to ambiguous property rights and high transaction costs.
Coase’s assumptions may not be true for my case, but they are still valuable, as they provide the necessary conditions for bargaining to occur. If I want to solve my problem, I will need to pursue both definitive property rights and lower transaction costs, and I plan on texting my landlord to make this happen.
No comments:
Post a Comment