Smoking in Public Places
A recent debate has ocurred on whether smoking sections in public restaraunts should be banned. Second hand smoke is an externality. Basically, a person or group of people are affected by acts that they themselves are not committing. Second hand smoking is then a negative externality because it has negative effects on others who are not smoking. I have read that some ways to correct some negative externalities are through taxes. Can you think of any other ways to correct this problem without any taxing being paced into effect?
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An alternative approach to externalities that is not discussed in the textbook is known as the Coase Theorem. The Coase Theorem argues that externalities occur because property rights are not well defined. For example, suppose that smokers in a particular restaurant claim they have a "right" to smoke and, for convenience sake, let's say they place a $100 value on this right. Meanwhile the non-smokers in the restaurant claim that they have a "right" to a smoke-free environment and place a value of $75 on this right. Clearly if both types of people occupy the same space then we have a conflict of "rights." According to Coase, if a judge (or restaurant owner) were to come along and simply define who has the ultimate right then, as long as bargaining costs are low, an efficient outcome will result--that is, there will be no uncompensated externality. For example, let's say that the restaurant owner decides that today will be a non-smoking day in the restaurant. Knowing this, the smokers might consider bribing the non-smokers so as to allow them to smoke. After all, smoking is worth $100 to the smokers and the non-smokers only place a value of $75 on a smoke-free environment. Thus, the smokers could pay the non-smokers, say, $80, in order to buy the "right" to smoke from the non-smokers. The non-smokers would thus be compensated for any damage done to them and everyone will be happy. According to Coase, a simple, clear, delineation of property rights along with the ability to privately negotiate will take care of any externality problems--no need for government taxes or regulations!
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