Posted by **Anonymous** on Saturday, March 17, 2007 at 6:41pm.

Dick owns a dog whose barking annoys Dick's neighbor Jane. Suppose that the benefit of owning

the dog is worth $500 to Dick and that Jane bears a cost of $700 from the barking. Assuming Dick

has the legal right to keep the dog, a possible private solution to this problem is that

a. Jane pays Dick $500 to get rid of the dog.

b. Dick pays Jane $650 for her inconvenience.

c. Jane pays Dick $650 to get rid of the dog.

d. There is no private solution that would improve

this situation.

a and c both seem right to me. Which one is correct?

From a practical standpoint, I think d. is the best answer.

In c, both gain. In a, Dick does not gain, but he does not lose. But Dick has no incentive to take the deal in a.

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