Sophia sits behind Gabriel on an airplane. Gabriel owns the right to recline his seat and values this right at $10. Sophia values a non-reclined seat in front of her at $40. Assuming no transaction costs, which of the following represents an efficient solution?

Question

​Sophia sits behind Gabriel on an airplane. Gabriel owns the right to recline his seat and values this right at $10. Sophia values a non-reclined seat in front of her at $40. Assuming no transaction costs, which of the following represents an efficient solution?

Quizplus · Accepted Answer

A is the efficient solution because it results in both parties being better off. Sophia is willing to pay up to $40 to avoid having her space invaded by a reclining seat, while Gabriel only values the right to recline at $10. Therefore, if Sophia offers Gabriel between $10 and $40 to not recline his seat, Gabriel will accept because he is getting more value than his perceived value of the right to recline. Sophia is also better off because she gets to keep her space and only has to pay between $10 and $40, which is less than her perceived value of $40. Both parties are better off in this scenario, making it efficient.

​Sophia Sits Behind Gabriel on an Airplane

Sophia Sits Behind Gabriel on an Airplane