There is a bar on Off‐Main Street called the Rock‐n‐Roll Bar. All the people that go to that bar like to listen to rock‐n‐roll music, and they love live bands. If the bar owner brings bands in to play music on a Saturday night, she will make a lot of money. However there are tenants in this building who get annoyed by the loud music. The benefits/costs to the owner/tenants of having zero, one, two or three bands on a Saturday night are listed below.
If the tenants have the right to be free of loud music enforced through a
property rule, how many bands will play in Rock‐n‐Roll Bar on a Saturday night?
A. Zero
B. One
C. Two
D. Three
E. It depends on transaction costs
Since the transaction cost is missing and there is a predefined property right with the tenants, this can be concluded It depends on transaction costs that how many bands play on Saturday night. The reason for the same is that, high transaction cost can it becomes difficult to bargain in the given situation and if they decide to bargain, then there will be no mutual agreement between the two as the benefit provided by the bar owner is less than the cost incurred by the tenant. Thus, this situation will disincentives both parties and hence, transaction cost plays an important role in deciding how many bands will play on Saturday night.
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