Coase taught us that externalities are two-sided: there can't be an externality if nobody's around to experience it. And so we seek rules that make the lowest cost avoider of the externality be the one to bear the costs.
Today's application: open-plan offices. Canterbury's Department of Economics and Finance is now split between two open-plan barracks among a couple dozen such buildings in a muddy part of campus that once was a running track. Odds are that we'll be in the barracks for the next year and a half, but the right tail on that estimate is thick. They're gutting the old Commerce building looking for any problems in the cement floors (remember, we're still in earthquake-land); we have to entirely vacate that building, with most of our stuff going into long term storage as there's no way that the current facilities have room for everything.
But enough whinging; on with the problem at hand.
We all make noise in the course of our work: taking phone calls, chatting with colleagues, typing exceptionally loudly on a Das Keyboard Ultimate. Initial recommendations were that staff move to a small private room inside the open-plan space for extended phone conversations or chats with colleagues. The alternative is that everyone buy a set of noise-cancelling headphones. I've been pushing for the latter. Wearing headphones is pretty low cost, especially relative to having to run and transfer calls all the time. And everyone has a different idea about how annoying other folks' conversations are; that's more easily solved via the volume knob on a headset than by shushing colleagues. Added benefit: the heavy construction equipment outside provides only a visual distraction. A hundred bucks spent on a good set of headphones puts me into my own little world, open-plan office or not: money very well spent.
Two norms seem to be developing across the two barracks. In my barracks, the micro folks pretty much live and let live. Folks who don't like noise wear headphones (ok, it's just me so far, but folks are only starting to move in), others wear no headphones, and if I'm taking a long phone call, I head for the private room less for my colleagues' benefit than for privacy. In micro, we're basically Coaseans (as is right and proper for any Top-100 Economics Department)
In the pod where the macro, finance, and experimentalists live, a norm of being shushed all the time seems to be emerging. We'll see whether the two-norm equilibrium holds or whether those wacky macro folks see the light. Either could be optimal depending on folks' costs of wearing headsets and folks' noise abatement costs.
Final note: none of this counts as an externality for policy purposes precisely because we expect firms to optimally structure things within their own contractual nexus. The optimising employer will seek that the lowest cost avoider bear the costs and will allow sufficiently disaggregated decisionmaking to allow inter-departmental heterogeneity in different types of cost be reflected in different barracks' solutions.