Dealing with squealing children at least cost

Paul Little wrote an interesting Herald on Sunday column the week before last, about squealing children:

Spare a thought in your charity for the residents of Stonefields, an "urban village" at Mt Wellington where, among other things, the "planting of pohutukawa trees along the boulevards, mimics the original lava flows", a market includes "substantive family restaurant and other dining/takeaway options" and parks provide "for a range of passive and active recreational spaces".

The planning and design of the joint appears exemplary. Unfortunately, it didn't allow for the people.

Such as those who have been complaining because those parks' recreational spaces are just a little too active.

As resident Alan Gilder says: "The park is awesome but they haven't put a lot of thought into it - the flying fox generates a lot of squealing.

Squealing. How awful, but how true. Where there are children there will likely be squealing.

And where there are flying foxes there will almost certainly be a lot of squealing.

If there is a sound more aggravating than that of children enjoying themselves then I don't know what it is.

Now, squealing children is a classic negative externality - an uncompensated impact of the actions of one party on a bystander. The poor residents of Stonefields face a cost that is imposed on them by the unscrupulous actions of the children. Since the children have no incentives to take into account the costs that they are imposing on the residents of Stonefields, they generate too much noise compared to the socially efficient optimum.

How can the externality problem be solved? One option is government intervention, as Paul explains:

What to do? Perhaps the residents could crowdfund a shush monitor - someone in attendance with a decibel reader who could hiss "shush" at the children when the squealing reached a certain level.

A "shush monitor" is an example of a command-and-control policy. The local government puts in place a limit on the allowable amount of noise, and when that noise is exceeded the nasty noisemakers can be sanctioned - perhaps by fines, or sending them to bed without dessert. If the noise level consistently exceeds the limit, the playground could be closed. No more negative externality.

Now, this solution follows from what is called the "polluter pays principle". Under this principle, the party that is responsible for the pollution is solely responsible for making restitution for the damage they cause. Since the children are causing the noise pollution, they have to pay the cost of making things right. Even if that means closing the playground. So, the cost of reducing the externality in terms of foregone fun could be pretty high.

There is an alternative to the polluter pays principle. Instead of making the polluter pay, we could try to solve the problem of the externality at the least cost (maybe we call this the 'least cost principle'). Instead of closing the playground at the cost of lots of fun times (which would be an ongoing cost, since fun would be lost every year that the playground is not there), perhaps the government could soundproof the houses that are next to the park? That would be a one-off cost, and likely a lower cost in total than the lost fun.

Of course, maybe no government-based solution is required at all. The Coase Theorem tells us that, if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own (i.e. without government intervention). In the case of a bargaining solution under the Coase Theorem, it depends crucially on the distribution of entitlements (property rights and liability rules). Do children have the right to play and make noise? If so, then the residents would have liability to pay the children to be quiet - maybe buy them a bunch of Playstations and send them indoors to be quiet. Either that, or the children can just keep having fun in the playground and making as much noise as they like. On the other hand, do the residents have the right to peace and quiet? If so, then the children would have liability to compensate the residents for the noise of their playing. Either that, or they have to give up the playground.

Probably the right to peace and quiet prevails - in New Zealand homeowners have the right to quiet enjoyment of their property. So, the children will have to compensate the Stonefields residents for their excessive squealing. Or will they? The residents of Stonefields chose to live close to a park, and the cost of the negative externality will be factored into the price of the houses (if squealing children makes houses in Stonefields less desirable, then houses there will consequently be cheaper). So, you could argue that the residents of Stonefields have already been compensated for the negative externality, which has been incorporated into the price of housing (at no additional cost to the children). In which case, the residents should just suck it up or move somewhere quieter.