Dem Beat and External Costs
6(a) Dem beat produces external cost as it produces noises and affects the students nearby. To solve this negative externality, market participants can apply private solution like bargaining. According to Coase theorem, if private parties can costlessly bargain over the allocation of resources, they can solve the externalities problem on their own.
Consider case i, that is students have the right to dem beat. If the benefit to the students who dem beat is smaller than the cost to the bystanders, socially efficient outcome would be students stop dem beat. But the private outcome can be the bystanders pay an amount of money that is greater than the benefit to the students but smaller than the cost to themselves. Then the externality can be solved. However, if the benefit to the students who dem beat is greater than the cost to the bystanders, bystanders are not willing to pay more than their cost and students are not willing to accept less than the benefit. Therefore, the students continue to dem beat.
For case ii, that is the bystanders have the right to enjoy peace and quiet. Benefit to the students who dem beat is greater than the cost to the bystanders, then the socially efficient outcome would be students continue to dem beat. And the private outcome is the students who dem beat pay an amount more than the cost to the bystanders to put up with the noise produced.
However, the private solutions do not always work. It is because there are transaction costs, which may make it impossible to reach a mutually beneficial agreement. Also, there are coordination problems as the bystanders affected by dem beat are very large. Coordinating them may be costly and difficult. (b) If the private solution is feasible in the above cases, then it doesn’t require the University to intervene the situation as it would be useless. However, as Mentioned above, the group of bystanders affected by the external cost is large and it is difficult to coordinate, and
Consider case i, that is students have the right to dem beat. If the benefit to the students who dem beat is smaller than the cost to the bystanders, socially efficient outcome would be students stop dem beat. But the private outcome can be the bystanders pay an amount of money that is greater than the benefit to the students but smaller than the cost to themselves. Then the externality can be solved. However, if the benefit to the students who dem beat is greater than the cost to the bystanders, bystanders are not willing to pay more than their cost and students are not willing to accept less than the benefit. Therefore, the students continue to dem beat.
For case ii, that is the bystanders have the right to enjoy peace and quiet. Benefit to the students who dem beat is greater than the cost to the bystanders, then the socially efficient outcome would be students continue to dem beat. And the private outcome is the students who dem beat pay an amount more than the cost to the bystanders to put up with the noise produced.
However, the private solutions do not always work. It is because there are transaction costs, which may make it impossible to reach a mutually beneficial agreement. Also, there are coordination problems as the bystanders affected by dem beat are very large. Coordinating them may be costly and difficult. (b) If the private solution is feasible in the above cases, then it doesn’t require the University to intervene the situation as it would be useless. However, as Mentioned above, the group of bystanders affected by the external cost is large and it is difficult to coordinate, and