What might prevent from reaching an efficient outcome

Reference no: EM13234047

Pedro loves playing rock music at high volumes. Mario loves opera and hates rock. Unfortunately, they are next door neighbors in an apartment building with paper thin walls.

a. What is the externality here?

b. What command-and-control policy might the landlord impose? Could such a policy lead to an ineffecient outcome?

c. Suppose the landlord lets the tennants do whatever they want. According to the Coase theorem, how might Pedro and Mario reach an efficient outcome on their own? What might prevent them from reaching an efficient outcome?

Reference no: EM13234047

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