Question

A confectioner (a candy maker) and a dentist run their business in two separate but adjacent houses. The confectioner operates two loud machines in his house. The noise from the machines had gone unnoticed for years until the neighboring dentist decided to move his office to the room closest to where the confectioner operated his machines. The noise from the machines makes the dentist’s work impossible. The dentist sues the confectioner in court.

Suppose now that confectioner has three ways of dealing with the problem
of his noisy machines interfering with the dentist’s business: 1) to sound-proof the wall
between the houses at a cost of $20K; 2) to switch to quieter, but more expensive,
machines, at a cost of $30K; or, 3) to relocate at a cost of $100K.
The dentist, on the other hand, has two ways of dealing with the noise problem: 1) to
sound-proof his entire office for $25K; or, 2) to remodel his house again and move his
office back to the previous side of the house and away from the noise at a cost of $40K.
Suppose that in this scenario a merger is not possible, and that the transaction costs are
zero.
c. If the court rules in favor of the dentist, then what would be the resulting
outcome? Explain.
d. Assuming away subjective considerations of justice, morality, etc., did the court
make the economically efficient ruling here? Why or why not? (You must relate
your answer here to part (c) above).
e. Briefly, state the outcome if the court rules in favor of the confectioner instead?

Answer 1

Seeing the above case study, let's see what are the possible outcomes as far as the court rules:

(c) If this case the court rules in favour of the dentist or we say agains the confectioner then following may be the possible outcomes:

The confectioner is only left with 3 options to carry on with as per the court rules. But as mentioned each one of this would make him pay a heavy cost instead.

The sound proof wall costs him $20k ; switching to expensive machines but quieter costs him $30 k and relocate costs him $100 k

Seeing the costs of the above options economically, the confectioner would prefer the cost friendly option among the 3 available ones!! That is, he would put a sound proof wall that would cost him $20k which would no more disrupy dentist's work.

(d) Seeing the court ruling, I believe that the court has made economically efficient ruling here.

This can be said by seeing the all the 5 available options to both the confectioner and the dentist. Among all the 5, the $20 K is the most cost friendly and would lead to lesser economic cost. And the court is pretty well aware that the confectioner would prefer the cost friendly option as explained in part (c) of the answer.

(e) If in case the court's ruling was in favour of the confectioner then it would have left him with the 2 available options of whether to sound proof his entire office for $25 K or to move his office back to the previous side of the house for $40 k

It would be dentist's decision to go for whichever option he wants to but seeing this from the economic point of view it is obvious that it would have otherwise made a bigger sum of money to be paid.

Conclusion: The main issue here is to sort the issue of noise disturbance and that too with a cost friendly option. So court's ruling in favour of dentist is quite fair and commendable.