Welcome to our first Price Theory Puzzle! In this series, we will pose questions for debate that build on previous newsletters (or are just fun puzzles that we steal from Alchian and Allen).
How it will work is that we will pose a question, and then we open it up for discussion among the readers. We will hop in with our thoughts too, but it is really a chance for a discussion. Today’s question builds on this week’s newsletter about externalities:
College-age people tend to keep different hours, are more likely to have loud parties, and are less likely to maintain their homes and yards than older neighborhood residents. As far as the older neighborhood residents are concerned, college-aged neighbors impose a cost on the neighborhood, at least in expectation. However, preventing people from living in your neighborhood on the basis of their age is likely to violate anti-discrimination laws.
More generally, most people think that excess noise in one’s neighborhood imposes a cost. Many municipalities have noise ordinances that limit noise levels.
What does economic theory tell us about why you are able to discriminate against your neighbors on the basis of noise and not on the basis of age? We are looking for economic theories, not moral theories.
Sep 23, 2022Liked by Brian Albrecht, Josh Hendrickson
I think this is an interesting question, and not just because of its content. "What does economic theory tell us about why this policy exists?" is not a question that gets asked enough, perhaps.
I'm sure there are more interesting answers--and I look forward to reading them--but the answer that first struck me was that the transaction costs associated with organizing a coalition of noise makers to support such antidiscrimination laws is much greater than the transaction costs associated with organizing a coalition of young people to support them.
That's interesting. I had been thinking a bit about transaction costs but from the side of those organizing to enact "the ban" (either noise or young people). But you're absolutely right, both sides have to organize.
The noise is the externality; not the age of the individual. Discriminating based on noise helps reduce the external costs imposed on the neighborhood, regardless of the age of the person making the noise. Discriminating based on age can prevent some noisemakers from moving into the neighborhood, but will also keep out young people who would not impose an externality, and may very well increase the quality of the neighborhood.
There does seem an important difference between ex post and ex ante harms, by which I mean harms that are realized vs. harms that are only expected to happen. But we also ban things in expectation. Drunk driving is illegal even though the accident is the externality, not the driving. But maybe that's the exception?
I guess we could say it's about the magnitude of harm? A noisy neighbor imposes a cost on you, but it's not going to harm or end your life in outright physical ways immediately. You can remedy the problem after the event, which is not the case if you're harmed by someone drunk driving.
Cars are not just a means of transportation they can also be lethal instruments.
Therefore to be allowed to drive a license is required and also insurance. We have (a lot of) road rules and we try to build the roads etc. as safe as possible. Government regulation helps to force manufacturers to make the cars as safe as possible. This is all done to limit the harm we know that can and will happen.
(Many wish other lethal instruments - weapons - were just as well regulated.)
Alcohol, Rx and "recreational" drugs, etc. exponentially heighten the chance harm will be realized.
Not all people college-age supposes a harm to the neighborhood but everybody that surpasses some amount of noise does, so if you discriminate on basis of age you will still have the possibility of someone surpassing the noise limit, and also leaving out people that could do more good than harm to the neighborhood.
But if you focus on the real problem that ought to be solved, "that excess noise in one’s neighborhood imposes a cost", then you must focus on which would be the maximum level of noise that doesn't impose a cost and not let anyone in the neighborhood surpass it.
It's hard though because it doesn't really go from zero cost to positive cost. It's a continuum. So is it just that we don't think the level of the externality gets high enough to be worth banning young people? That makes sense for why we don't ban young people. I don't know if it answers why be ban the banning of young people.
We ban the banning of young people because that creates a precedent, if we cannot discriminate someone for reasons that are inherent to them (sex, race, religion, etc) same applies to age, and at least in Spain it is unconstitutional to do so. We cannot arbitrarily say that you can discriminate some but not others for no reason there must be set some boundaries.
In principle, the harm caused by young people could cause the same losses. Is your claim that in practice they don’t and young people are much less of a nuisance and so we treat them differently?
Sep 23, 2022·edited Sep 26, 2022Liked by Brian Albrecht
You stated a situation and asked for an economic justification to limit noise. So I mentioned costs caused by possible ensuing health issues. "Quiet" has an economic value, it is not tangible, but it can be measured.
I would never call a person a nuisance, but behavior can be - from younger as well as older people.
I found the question, only mentioning college-age kids, rather limited. People with yapping dogs, or a fondness of motorcycle repair, or having twins practicing on a drumset, can cause the same issues.
A new development is AirBnB, people buying houses/apartments and renting them out to party-people. It is never a house/apartment next door to where they themselves live. The owners earn a profit but others are paying the (considerable) costs.
The noise abatement issue is becoming more important as the US in many geographic areas needs to convert to higher density housing. That type of buildings have to be built better, with better materials - but often are not. (I lived a major part of my life in a densely populated country with lots of cheaply built row houses and apartments. I know the daily misery that gives.)
Recently more people started working from home either completely or a few days a week. Noise, especially too much of it, can be an important issue for them. (A colleague of my husband sold her condo, at a loss, after she had to stay home and work there during the pandemic. Till then she had no idea her upstairs neighbors - with three kids - also home all day, sported hardwood on their floors and insisted on walking and running on hard-soled clogs.)
I think this is an interesting question, and not just because of its content. "What does economic theory tell us about why this policy exists?" is not a question that gets asked enough, perhaps.
I'm sure there are more interesting answers--and I look forward to reading them--but the answer that first struck me was that the transaction costs associated with organizing a coalition of noise makers to support such antidiscrimination laws is much greater than the transaction costs associated with organizing a coalition of young people to support them.
That's interesting. I had been thinking a bit about transaction costs but from the side of those organizing to enact "the ban" (either noise or young people). But you're absolutely right, both sides have to organize.
The noise is the externality; not the age of the individual. Discriminating based on noise helps reduce the external costs imposed on the neighborhood, regardless of the age of the person making the noise. Discriminating based on age can prevent some noisemakers from moving into the neighborhood, but will also keep out young people who would not impose an externality, and may very well increase the quality of the neighborhood.
There does seem an important difference between ex post and ex ante harms, by which I mean harms that are realized vs. harms that are only expected to happen. But we also ban things in expectation. Drunk driving is illegal even though the accident is the externality, not the driving. But maybe that's the exception?
I guess we could say it's about the magnitude of harm? A noisy neighbor imposes a cost on you, but it's not going to harm or end your life in outright physical ways immediately. You can remedy the problem after the event, which is not the case if you're harmed by someone drunk driving.
Cars are not just a means of transportation they can also be lethal instruments.
Therefore to be allowed to drive a license is required and also insurance. We have (a lot of) road rules and we try to build the roads etc. as safe as possible. Government regulation helps to force manufacturers to make the cars as safe as possible. This is all done to limit the harm we know that can and will happen.
(Many wish other lethal instruments - weapons - were just as well regulated.)
Alcohol, Rx and "recreational" drugs, etc. exponentially heighten the chance harm will be realized.
Not all people college-age supposes a harm to the neighborhood but everybody that surpasses some amount of noise does, so if you discriminate on basis of age you will still have the possibility of someone surpassing the noise limit, and also leaving out people that could do more good than harm to the neighborhood.
But if you focus on the real problem that ought to be solved, "that excess noise in one’s neighborhood imposes a cost", then you must focus on which would be the maximum level of noise that doesn't impose a cost and not let anyone in the neighborhood surpass it.
It's hard though because it doesn't really go from zero cost to positive cost. It's a continuum. So is it just that we don't think the level of the externality gets high enough to be worth banning young people? That makes sense for why we don't ban young people. I don't know if it answers why be ban the banning of young people.
We ban the banning of young people because that creates a precedent, if we cannot discriminate someone for reasons that are inherent to them (sex, race, religion, etc) same applies to age, and at least in Spain it is unconstitutional to do so. We cannot arbitrarily say that you can discriminate some but not others for no reason there must be set some boundaries.
Noise harms people's health in several ways, leading to less income & more costs for the individual as well as for society.
So it’s a difference in severity?
Sorry, I do not understand the question.
In principle, the harm caused by young people could cause the same losses. Is your claim that in practice they don’t and young people are much less of a nuisance and so we treat them differently?
You stated a situation and asked for an economic justification to limit noise. So I mentioned costs caused by possible ensuing health issues. "Quiet" has an economic value, it is not tangible, but it can be measured.
I would never call a person a nuisance, but behavior can be - from younger as well as older people.
I found the question, only mentioning college-age kids, rather limited. People with yapping dogs, or a fondness of motorcycle repair, or having twins practicing on a drumset, can cause the same issues.
A new development is AirBnB, people buying houses/apartments and renting them out to party-people. It is never a house/apartment next door to where they themselves live. The owners earn a profit but others are paying the (considerable) costs.
The noise abatement issue is becoming more important as the US in many geographic areas needs to convert to higher density housing. That type of buildings have to be built better, with better materials - but often are not. (I lived a major part of my life in a densely populated country with lots of cheaply built row houses and apartments. I know the daily misery that gives.)
Recently more people started working from home either completely or a few days a week. Noise, especially too much of it, can be an important issue for them. (A colleague of my husband sold her condo, at a loss, after she had to stay home and work there during the pandemic. Till then she had no idea her upstairs neighbors - with three kids - also home all day, sported hardwood on their floors and insisted on walking and running on hard-soled clogs.)