Khatia and Gwendolyn are neighbors in an apartment complex in downtown Manhattan. Khatia is a concert pianist, and Gwendolyn is a poet working on an epic poem. Khatia rehearses her concert pieces on the full-sized grand piano in her front room, which is directly above Gwendolyn's study. The following matrix shows the monthly payoffs to Khatia and Gwendolyn when Khatia's front room is and is not soundproofed. The soundproofing will be effective only if it is installed in Khatia's apartment. a. If Gwendolyn has the legal right to peace and quiet and Khatia and Gwendolyn can negotiate at no cost, will Khatia install and maintain soundproofing? Khatia install and maintain soundproofing because: Khatia's loss from installing soundproofing is smaller than Khatia's cost of paying off Gwendolyn to allow for her to make noise. Khatia's loss from installing soundproofing is larger than Khatia's cost of paying off Gwendolyn to allow for her to make noise. b. Suppose that Khatia has the legal right to make as much noise as he likes and that negotiating an agreement with Khatia costs $15 per month. Will Khatia install and maintain soundproofing? ,Khatia install and maintain soundproofing because: Gwendolyn's cost of paying Khatia to induce her to install soundproofing, including the $15 negotiating cost, is smaller than Nendolyn's gain from soundproofing. Gwendolyn's cost of paying Khatia to induce her to install soundproofing, including the $15 negotiation costs, is larger than Gwendolyn's gain from soundproofing. c. Suppose Gwendolyn has the legal right to peace and quiet, and it costs $15 per month for Gwendolyn and Khatia to negotiate an agreement. (Compensation for noise damage can be paid without incurring negotiation cost.) Will Khatia install and maintain soundproofing? , Khatia install and maintain soundproofing. s this outcome socially efficient? d. Why does the attainment of a socially efficient outcome now depend on whether Khatia has the legal right to make noise? Because the soundproofing is unlikely to work. Because negotiation is costly. Because Khatia prefers to play the piano. Because Gwendolyn prefers peace and quiet. Because private parties are never able to reach the socially efficient outcome without legal intervention. Khatia and Gwendolyn are neighbors in an apartment complex in downtown Manhattan. Khatia is a concert pianist, and Gwendolyn is a poet working on an epic poem. Khatia rehearses her concert pieces on the full-sized grand piano in her front room, which is directly above Gwendolyn's study. The following matrix shows the monthly payoffs to Khatia and Gwendolyn when Khatia's front room is and is not soundproofed. The soundproofing will be effective only if it is installed in Khatia's apartment. a. If Gwendolyn has the legal right to peace and quiet and Khatia and Gwendolyn can negotiate at no cost, will Khatia install and maintain soundproofing? Khatia install and maintain soundproofing because: Khatia's loss from installing soundproofing is smaller than Khatia's cost of paying off Gwendolyn to allow for her to make noise. Khatia's loss from installing soundproofing is larger than Khatia's cost of paying off Gwendolyn to allow for her to make noise. b. Suppose that Khatia has the legal right to make as much noise as he likes and that negotiating an agreement with Khatia costs $15 per month. Will Khatia install and maintain soundproofing? ,Khatia install and maintain soundproofing because: Gwendolyn's cost of paying Khatia to induce her to install soundproofing, including the $15 negotiating cost, is smaller than Nendolyn's gain from soundproofing. Gwendolyn's cost of paying Khatia to induce her to install soundproofing, including the $15 negotiation costs, is larger than Gwendolyn's gain from soundproofing. c. Suppose Gwendolyn has the legal right to peace and quiet, and it costs $15 per month for Gwendolyn and Khatia to negotiate an agreement. (Compensation for noise damage can be paid without incurring negotiation cost.) Will Khatia install and maintain soundproofing? , Khatia install and maintain soundproofing. s this outcome socially efficient? d. Why does the attainment of a socially efficient outcome now depend on whether Khatia has the legal right to make noise? Because the soundproofing is unlikely to work. Because negotiation is costly. Because Khatia prefers to play the piano. Because Gwendolyn prefers peace and quiet. Because private parties are never able to reach the socially efficient outcome without legal intervention
