Suppose that Trevor is a resident of The Bad Place who enjoys hosting loud parties late at night. This annoys Trevor's neighbour Chidi, who likes going to sleep early. Suppose that Trevor enjoys each additional night of partying at $100, while Chidi values a good night's sleep at $200.

a) If there are no laws in The Bad Place limiting residents' behaviour, will Trevor host parties every night?

b) What is the socially efficient outcome in this situation? What transaction needs to take place for this outcome to be realised?

c) What happens if they need to pay a translator $150 in order to be able to communicate, as Chidi can only speak French?

Go back to the original case, and suppose that Trevor's friends Vicki and Shawn also get enjoyment out of attending Shawn's parties, while Chidi's friends Eleanor and Janet would rather enjoy a quiet night in. Vicki and Shawn benefit from the parties $240 and $300 per night respectively. Eleanor and Janet enjoy the quiet $50 and $400 respectively.

d) What is the new socially optimal outcome?How will this outcome be achieved?

e) What does this tell us about the requirements for Coase Theorem to realise the efficient outcome?