Coasian Bargaining. . . in real life!
Assigning property rights in the alley behind my apartment building.
As DUMBO, my home sweet home, has become more and more popular, more and more people are spending time in my neighborhood. I’m not a NIMBY in private; I love that public investment in Brooklyn Bridge Park has attracted private investment and visitors to my neighborhood. The two-way causal relationship between investment and visitors is by far and away a net positive.
There are, however, two problems:
The people who visit DUMBO do not bear the cost of littering in a neighborhood in which they do not live.
The people who drive to DUMBO love to park on the sidewalk directly beside my family’s townhouse, blocking one of our major modes of entrance and egress.
The first problem is a tricky one to solve, though a special shout-out is owed to the hardworking men of the Doe Fund. Individual benefits do not entirely internalize the positive externality of cleaning up the neighborhood, so a collective action problem results, etc., etc., we’re all familiar with the tragedy of the commons.
But the alley beside my parents’ townhouse is not held in common. It’s owned by the building, and my parents have the prerogative to clearly define their property rights by placing objects there.
And they have!
By purchasing planters and beautiful flowers for several hundred dollars, my parents have revealed what that sliver of sidewalk remaining unoccupied is worth to them—a helluva lot more than I value it, and certainly above my ability to pay!
Though it might not be “fair,” however you define such an ambiguous word, that my parents had to spend more money to reclaim something that was already theirs, the outcome is a Pareto optimal one. Hence, Coasian bargaining in action.