Curly and Moe are considering living alone or being roommates and splitting the rent for the next twelve months. If they live alone, they each rent a one bedroom, one bath apartment for $500 per month, while if they are roommates, they can split a two bedroom, one bath apartment for $800 per month. The one difficulty they have is that Moe snores very loudly. Curly estimates the cost of poor sleep due to Moe's snoring at $150 per month. Moe could obtain a snore-eliminating device for $50 per month. Curly and Moe have both taken an economics course and so are willing to apply the Coase theorem and negotiate. Who will compensate the other?

Multiple Choice

• Neither Moe nor Curly has the initial property right, and so neither will compensate the other.
• Moe must compensate Curly because Moe is the one who is snoring.
• Curly must compensate Moe because Curly is the one who is bothered by the snoring.
• Either Moe will compensate Curly or Curly will compensate Moe because the alternative, renting separate apartments, leaves each worse off.