New York University Stern School of Business
Conflict & Decision Making
Summer 2000 Professor Seth Freeman
Class 7 - Can Ownership Help Us? What if My Stuff Hurts Your Stuff?

I. Using Private Property to Solve Economic Dilemmas

A. Three simple problems: Absenteeism, long lines for interviews, parking shortages
B. Examples of Private Property Solutions- time-off banks, interview auctions, parking passes
C. Criticisms?
D. The Private Property Game

II. The Candy Company and the Rubber Plant

III. What Do We Do If My Stuff Hurts Your Stuff?

A. What Should Happen in the Candy v. Rubber Case?

Please form a group with three other classmates. For the next ten minutes, please read and discuss the Candy v. Rubber problem from the perspective I assign you. What should happen? Be prepared to state in a sentence or two your proposition (for example, "we believe that X should be allowed to....") and then be prepared to argue on behalf of your position, showing why your proposition is the best approach. I will assign you one of four perspectives: (1) a microeconomist who is mainly concerned with efficiency (2) the owners of the Candy Store (3) the owners of the Rubber Plant, or (4) a group of community leaders. Be prepared to anticipate and reply to counterarguments the other groups may raise.

B. The Problem of Conflicting Use

1. Air pollution 3. Product 1 eats into product 2
2. Noisy neighbors 4. Downstream fishermen and upstream plant

C. Microeconomics and the Coase Theorum

1. The Parable of the Cattle
2. The Coase Theorum
3. "Laws and regulations are only needed if the parties can't bargain"

D. Can You Resolve Conflicting Use Disputes without Laws or Bargaining?

1. Criticisms of the Coase Theorum- endowment effects, norms, other values
2. The Shasta County Case
3. The Role of Community (and its limits)
4. Far Side Exercise Revisited
5. Application to the Dilemmas you face- mediation, arbitration, and team building
6. Using I FORESAW IT for a more nuanced approach


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Next time, be prepared to discuss the African Elephant Case


The Private Property Game

Form and Name Your Team! Please form teams of four or five students. Start by picking a name for your team. (e.g., "The Wildebeasts" or "The Players to Be Named Later").

Develop Your Proposal! Your host, Professor Seth Freeman will pick one of several economic problems you might encounter in business and personal life. The teams will then have 60 seconds is to come up a plausible private property solution which you really could use to help you resolve the conflict.

Bid for the Right to Play!Your host will then ask you to bid for the right to propose the solution. If your team makes the highest bid, you will have 60 seconds to describe the private property arrangement you might use. If the proposal is at least somewhat plausible in the judgment of your host, you will get the points you bid.

Critics' Revenge! But then the other teams will have the a chance to challenge your proposal. The other teams will bid points for the right to raise any one objection they wish. (Economic, moral, practical, etc.) Your team will have to defend your proposal against the highest bidder's single best objection. The rest of the class will then vote on your response. If a majority agree with the criticizing team, the critcizing team the points they bid and you will lose that many points. If a majority agree with you, the criticizing team loses the points they bid and you get those points too. Two teams will be allowed to criticize.

We'll play for three rounds or 15 minutes, whichever comes first. Each member of the team with the highest score will receive three extra credit class participation points. (No team will lose class participation points.).

1. New Zealand Fish- Fish off the coast of New Zealand have been fished to near extinction. A ban on fishing has restored the fish population, but how can the fishing industry and the government make sure the fish aren't depleted again? Develop one workable private property solution.

2. African Blackwood- Blackwood, a precious wood used to make clarinets, may become unavailable because much of the land where the Blackwood tree grows has been burned in recent years by farmers seeking additional farm land. Other wood has been destroyed by wild animals and droughts. Develop one workable private property solution.

3. Overspending- Each department traditionally spends as much money as possible as the fiscal year ends because there is an unwritten rule that if you don't you will not get full funding the next year. This 'use it or lose it' rule has caused the company to spend money wastefully for several years. However, efforts to encourage savings in the last quarter have failed to date. Develop one possible private property solution to the budget problem.




Key Features of a Viable Private Property Solution
*Excludability- Identify the property as your and exclude others from using it
*Enforceability- Enforce your right against trespassers at low cost
*Transferability- Be able to transfer it to someone else




The Candy v. Rubber Case

Venus Candy, a family owned business, began making and selling assorted chocolates on site forty years ago in White Plains. The family is very proud of the success it has achieved at this site and is deeply committed to the local community, going out of its way to hire local people and to use local suppliers whenever possible. Last year, New Millenium Tire and Rubber, a public corporation, bought a small building nearby and began producing small amounts of rubber there. While New Millenium assured the city that it would control effluents carefully, fumes from the rubber plant have made it impossible for Venus to make candy; the fumes seep into the air vents and taint the candy batter. Venus had been making a profit of $50,000 annually; now Venus has suffered a loss of $50,000 this year as a result of these fumes and will suffer similar losses in the future if the problem continues. (Thus the fumes are causing a total of $100,000 in damage annually.) These losses would force Venus out of business within three years. New Millenium has posted profits of $200,000 and expects to make at least this much in the next ten years. Venus has employed 40 workers for years, most of whom would be on unemployment or worse otherwise. New Millenium employs 30 workers, most of whom could find work elsewhere quickly. Each business can relocate, although doing so would cost each one about $1,000,000. There are no adequate pollution control devices that either business can install for less than $2,000,000.


It's Two new C&D Extra Credit Challenges!

The "Nurse, I've Been Waiting Almost an Hour!" Problem!

Here's a chance to earn up to 10 extra credit points on the class participation portion of your grade. Some time in the next two weeks, write about a page on this question:

An article in the science section of the New York Times for Tuesday, June 8, 1999 discussed the dilemma doctors face in trying to schedule patients. You know what it's like- you arrive on time for your appointment, you wait 45 minutes, then you go into an examination room and wait another 15 minutes. Then the doctor comes in, does a very quick examination, gives you a prescription, and tells you to pay the receptionist. Meanwhile, the doctor is racing around feeling harried.

If you were a doctor in private practice, is there anything you could do to allocate time better for yourself and your patients? (Assume you work Monday through Friday 9 a.m. - 5 p.m and Saturday from 9 a.m. to 1 p.m. and that you can't simply schedule more office hours.) Use the I FORESAW IT mnemonic to develop a plausible solution (or a plausible set of partial solutions) by first working through and writing out at least four of the letters. (Be sure to consider Interests and make sure you consider at least one free market solution when you brainstorm Options.) State the solution(s) you like best (making sure your solution(s) at least partially satisfy most of the interests you've identified) and then in a paragraph use critical thinking to briefly explain one argument for and one argument against your favorite solution(s). That's worth up to eight points.

For an extra two points, call a doctor and ask her for candid feedback about your solution(s). Report her response in a paragraph.

The "Napster is Great!" "Napster is Terrible!" Challenge!

Here's another chance to earn up to 10 extra credit points on the class participation portion of your grade. Some time in the next two weeks, write about a page on this question:

A cover article in Newsweek discussed the impact of a free new piece of software called Napster. Available on the Internet, the program allows you to electronically duplicate and swap the content of music CDs with others, which means you can easily get a free library of all the music you could ever want. Many in the record industry see this as little more than a license to steal copyrighted material; the heavy metal group Metallica has filed a lawsuit alleging that it has lost sales of over 300,000 units from Napster. Others who oppose Napster argue that without reliable and enforceable copyright protection, commercially produced music will become extinct. On the other side, many have argued that Napster is inevitable, just, and ultimately an engine that will create great wealth for everyone, including record industry firms, and that the reports of the death of commercial music are greatly exaggerated.

Who's right? Please read at least one good recent article on the subject (in Newsweek, the Economist, or another respected source) and discuss the problem in a page or two from the perspective you disagree with. If you feel Napster is terrible, argue for it. If you feel it's great, argue against it. Your paper should consider the arguments microeconomists would likely raise about private property. Be prepared to anticipate and reply to counterarguments to the side you are writing in favor of.