Negative Externality Problem

One of my roommates, Carla, is a personal trainer and class instructor at the AFC. While she was talking to me about a problem she faced in her core class the other day I could not help but to think of Econ 333. She explained to me a situation in which I found both an externality in consumption and in production. Externality as Gruber defined it “occurs whenever the actions of one party make another party worse or better off, yet the first party neither bears the costs nor receives the benefits of doing so.” In summary, she said that whenever somebody who is sick comes to one of her classes, he/she imposes a negative externality cost on the rest of the participants. That participant is increasing everybody else’s of risk of catching a disease. Additionally, having somebody coughing and wheezing in class gets many people annoyed, thus affecting their optimal consumption of the service offered. She/he is also imposing a negative externality in production because Carla with limited resources and a time constraint has to allocate more attention and energy on she/he in order to make sure the person is able to keep up with the class. This will prevent her from helping others who might need her assistance, therefore making her service production be less effective and her performance as an instructor lower. And all of these consequences do not affect the first party: the sick person. Even though most Internet journals and blogs say that people can workout mildly when they are sick, Can I Run With a Cold?, College of Sports Medicine, they do clarify that there is a negative externality imposed in others such as infecting them. For this reason and the ones mentioned above, gym etiquette and no-no's suggest that sick individuals, avoid exercising at the gym.

Oddly enough, we (as econ majors) thought of a solution to this problem using the Coase theorem. Since it suggests that the resources will be allocated to the participants who value them the most, regardless of transaction costs. A participant could pay the sick one to not come to the class if she values the class a lot more, and if the cost for this participant equals the benefit for the sick participant, she/he would not come to the class and consumption and production of the service would be optimal. Adam Davidson states solutions similar to this one in his article “Should We Tax People for Being Annoying?”