A builder proposes a skyscraper that would block sunlight to the neighboring houses. The building would have net benefits to the builder of $100,000. The neighbors, who use some solar heating, would face reduced property values and increased heating costs totaling $80,000.
(a) The law clearly stipulates that the neighbors have the right to solar access. Is a Pareto-improving exchange possible? What do you expect the outcome to be?
(b) How, if at all, would the outcome be different if the builder had the right to construct the skyscraper, even if it blocked solar access?
(c) Suppose again that the neighbors have the rights. Because there is a large number of neighbors, hiring an attorney to negotiate with all of them will be expensive, perhaps as much as $25,000. Is a Pareto-improving exchange possible? What do you expect the outcome to be?
(d) Now suppose that the builder has the rights, and the costs of the lawyer (still $25,000) belong to the neighbors. Is a Pareto-improving exchange possible? What do you expect the outcome to be? Compare this scenario with those of the other parts of this problem. What has led to these different outcomes?