An Indecisive (and costly) HOA

 When we lived in Nashville, my dad put his handiness to work and built my sibling and me a beautiful playhouse (not one of these pre-bought sets). Once he finished, he unveiled our new house after school – and we quickly got the attention of the kids on the block…

…and the HOA. My dad had painted the trim of the wooden house red, thinking it matched the neighborhood homes. The HOA did not agree. A few days later, they dropped off a letter telling him to repaint the trim a less bright color. My dad begrudgingly compiled, painting the trim a pale blue. Yet again, the HOA sent a letter telling him to repaint the trim, this time to a neutral color – resulting in our white playhouse having a mud-brown trim. 

The fact my dad had to repaint the playhouse multiple times suggests that the Na for the HOA may have been low. Having to repaint the playhouse TWICE increased the cost of the decision (Ci) for my dad – and the decision-making costs (Di) of trying to negotiate with the HOA – some of whom wanted the playhouse to be out of sight from the street. If the HOA had used a simple majority, my dad would not have had to make so many runs to Home Depot (although I think he liked painting so
much he may not have minded too much).

Coase in the Cul-de-sac

The street my family used to live on has a cul de sac at the end of it. Recently, I heard that a family on this street, the Gondi’s, were going to sell their house at the end of the cul de sac, and this was a big deal! It is the most expensive house in the entire neighborhood not only because the two physicians who lived there invested a lot of money into it, but more importantly because the Gondis own an empty lot next to the house which they never sold. This immaculate housing lot is filled with dense green trees that create a positive externality of a tranquil viewing for other neighbors. Additionally, it makes the club good of the cul-de-sac less rivalrous. However, with the news that the Gondis are selling their house comes the fear that this empty lot will also be sold. 

To make up (potentially inflated) numbers to illustrate this, let’s say the value of the house combined with the empty lot is $1.2 million (house: 1 million + empty lot: 200k). The new homeowner may decide to buy the house and then sell the adjacent empty lot to someone else to minimize their costs. When a new house is being built on the empty lot it will create negative externalities such as loud construction equipment, red clay tire tracks, and porta-johns to take the place of green trees. Therefore, given sufficiently low transactional costs of private bargaining, a potential Coasian solution could take place. The neighbors on the street could decide to pay a collected amount to the new home owner to keep the empty lot unscathed. However, if the cost to contribute towards the green lot is greater than the benefit of the scenic view then people may just have to get used to CAT excavators in the cul de sac or pack up and move!

Everyday Failure of Simple Majority Rule

Recently, I polled my roommate group chat on whether or not we should adopt a Russian Tortoise. The result: two resounding “yes” responses and two resounding “no” responses. In a situation where we were all 5 taking collective action via simple majority rule, my third “yes” would have broken the tie, and we would now have a tortoise named Clyde! 

But, imagine that I am a Downsian political party, trying to maximize votes via policy to win office and power— or, to win inter-roommate popularity. I face a conundrum in trying to craft my party "policy," given that there is no median to in my current four person electorate, and no winner under simple majority. If I was competing with some other, external “party” to be the most popular roommate via simple majority rule, and we were trying to appease this specific electorate of four via our tortoise policies, there would be no median vote for us to tailor our policy to and no deciding winner under simple majority rule. Even without parties, in a simple situation with four people taking collective action, majority rule fails to produce a winner in the 2-2 case.

This may seem both trivial and obvious, but this phenomenon could scale up to create serious political issues in the real world! Admittedly, this problem becomes less pronounced in a national election with millions of voters, given that you are probabilistically less-likely to have a race that comes down to a single, median vote. However, even with a massive, 10-trillion-person-sized electorate, the outcome could be 5,000,000,000 votes for “tortoise” and 5,000,000,000 votes for “no tortoise." In this case, neither a "pro-tortoise" or an "anti-tortoise" party could win. It could becomes necessary to scrap the simple majority tenet in order to resort to an alternative decision-making rule... might I propose a new, "tortoise and the Hare" method? Regardless, further economic research should compare the external costs generated by a tortoise litter box and the treatment of tortoises as a public good.