Question

Pretend you live next to Dominick, who likes to mow the lawn at 2 am (it’s good for the grass) … and your bedroom faces his yard. In this example what might be the externality? What is a private solution you could propose to Dominick to reduce the impact of 2 am lawn mowing?

Answer 1

The lawn mowing can create noise that might disturb the sleep of the neighbours. In this manner, this is a negative externality where the people who are not involved in the transaction are facing a reduced welfare. A Private Solution to the problem of negative externality can be bargaining. In this case we must provide a value in monetary terms to the sleep of the neighbours. Suppose that the sleep is valued at $10. a bargain can work in this case because dominick's the property right over his yard. We can offer Dominick an amount of $10 so that he stops the mowing of lawn in the night. Dominic will agree only if $10 are worth for him to stop lawn mowing. This could be the cost of a fertilizer or any other method that would improve the growth of the grass. This comparison is important because property rights are defined for Dominick and for the neighbours and Dominick will have no incentive to stop lawn mowing at 2 a.m unless he is given the appropriate compensation.