es would fear what things the neighbors might do to him.The final purchase price reached in this situation was the average of two assessments made on the property. However, the hatred the families felt toward Hawes meant that the families’ subjective value of the land was actually much higher than the sale price. The families were willing to do everything possible to keep the neighborhood safe, thus raising the subjective value placed on keeping Hawes out. Whereas, Ms. Brewton knew that if Hawes was to move in, her subjective value would be lower because of the constant threats and probable increase in security. When examined, the parties negotiated a division of the surplus between the two subjective values placed on the property by the parties.Under this division of the surplus, the solution reached is probably Kaldor-Hicks efficient and potentially Pareto superior. For something to be Kaldor-Hicks efficient, individuals made better off by the transaction have to be made sufficiently better off that they are able to compensate those who are made worse off. In this situation, the families’ subjective value was much higher than the price paid, so they were able to compensate the losers. (Hawes and Brewton) The solution to Hawes possibly moving into the neighborhood is also potentially Pareto Superior because at least one party is better off (the neighborhood) and no one is made worse off. (Hawes) This can only be arrived at if Hawes is viewed as no worse off than he was before the transaction. To reach this conclusion it must be argued that Hawes was not actually living there before the transaction took place, so he is no worse off. According to Coleman, “A successful exchange between such parties is, therefore, one in which the value to each of what he or she relinquishes is perceived as less than the value of what each receives in return. Such exchanges make no individual worse off; often they improve the l...
