Monday, 26 September 2011

More things that aren't externalities

Roommates impose costs on each other; the decision to flat with someone and the agreements governing that arrangement internalize those costs. Nuisance costs roommates impose on each other are not an externality of any policy relevance.

I hope they don't come up with a policy solution to this one:
Using census data and analysis of an informal pricing survey of 114 users of [excised].com (a “share bills” app for roommates which I co-founded), I estimate that solving the loud sex problem alone would be worth $1.1-1.9 billion per year to the US market. Mitigating all unpleasant noises would represent a market of around $12 billion per year for the population we considered.
Ok, maybe they're just thinking of how much they could earn selling noise-reduction devices and taking a pretty high upper bound. But:
What is to be done about this cacophony of copulation? Noise machines and comfortable headphones would probably be the cheapest way to solve to problem, but these solutions are unlikely to be sufficient. Improved building codes in areas with high population density would put the burden on developers, but perhaps construction could be stimulated with tax incentives. Or perhaps creating a standardized rating system would be a good way to bring sound isolation issues out of the closet and let the market decide how much peace and quiet is worth.
Or, we could just leave people to choose their roommates based on a broad bundle of characteristics and to sort out amongst themselves how to deal with disputes.

Again, as helpful reminder: building owners install any feature, including noise-proofing, up to the point where the discounted value of the increase in expected rental flow matches the cost of the building feature. Tenants sort based on cost and on disutility of noise. If asymmetric information between landlord and potential tenant on noise issues were sufficiently large and if enough potential tenants cared, buildings would already be third party certified for noise characteristics.

It's a bit embarrassing that Forbes gave space to what's effectively an advertorial for the roommate bill-splitting website on the hook of a big dodgy cost number extrapolated from 114 users of a website designed for folks who can't otherwise figure out how to split their own bills without rancor.

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