The railroad must pay a fine to the government for the damage due to the fires caused by its sparks. C. Answer the same questions, assuming that transactions are possible and costless. D. Transactions are possible but not costless. Airplanes make noise that disturbs residents of homes near the flight path. Suppose that the airline can, at some cost, reduce the noise to an insignificant level.
Home owners can get the same reduction by soundproofing their homes.
There are two thousand homes near the flight path. Reducing noise costs the airline a million dollars a year. In answering parts B and C, describe first what happens if there is no bargaining between airline and homeowners, and then whether bargaining will change the outcome. The airline has no legal obligation to reduce noise. Each homeowner has the right to a reasonable level of quiet, so if the airline does not reduce noise, it must pay each home owner for any resulting reduction in the value of his house.