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.
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.
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.
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.
Noise harms people's health in several ways, leading to less income & more costs for the individual as well as for society.