Question

My three nieces, ages 14, 12, and 6, live together. The youngest, Tula, thinks that “Let it Go” (from Frozen)should be played on repeat on her phone and stereo all the time and everyone should put on pink tutus and dance to it. The older sisters each suffer $15 of brain damage every night from the experience. The step-mother suffers $30 worth of brain damage every night. Tula gets $50 of pleasure.

1).What is the efficient outcome? Would you expect this to happen? (Remember, Tula owns the IPod and stereo.) How could the older sisters and the mother make it happen?

2.) How would your answer to question 1 change if one of the older daughters moved out to live with her biological mother?

3.) How would your answers change if a sister owned the phone rather than Tula? Could there be a public goods problem?

Answer 1

1) The Efficient outcome is to stop playing the song 'Let it Go'. Here we have Tulu who receives pleasure worth 50$ where the two sisters each are bearing a cost worth of 15$ each and the stepmother a cost of 30$. The total benefit in this scenario is 50$ whereas the cost is 60$. Hence stop playing the song is an efficient outcome.

2) If one of the older sisters moves out then the total cost rendered in this scenario is 15$ + 30$ = 45$ which is lesser than the pleasure (benefit) received by Tulu. Hence in this case playing the song is efficient.

3) Since Tulu is getting benefit from playing the song, she will have to pay to her sister to play the song. Hence the efficient outcome for the sister is to charge to play the song since here benefits would most likely be higher than the cost of playing the song. But since they are living in the same family property rights may not hold as good as they may on paper which might give rise to free riding.