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Back to Subjects - Economics

Sitting on your Hands as an Alternative to Money

Sitting on your Hands as an Alternative to Money The old adage money can’t buy happiness apparently was never learned in the small town of Dilley, Oregon. Jonathan Hawes is a convicted sex offender who was released into society after serving a five-year prison sentence. Upon his release from prison he planned to move into his mother Wendy Brewton’s house in Dilley, Oregon. Under Megan’s Law, police are required to notify neighbors when a convicted sex offender is classified as predatory. Before Hawes was classified, Ms. Brewton’s daughter alerted neighbors of Hawes’ imminent arrival. This upset the small community of 300 to 400 people. Suddenly, neighbors began researching the use of deadly force and the effect of watchdogs. The town called a meeting to discuss the situation with Ms. Brewton. The meeting became quite heated and at one point a resident threatened Hawes life. The meeting left it clear to Ms. Brewton that Hawes was not wanted in her house, which was located a mere 200 feet from a school bus stop. To resolve the conflict, at least three families pooled their money together and paid $250,000 to buy Ms. Brewton’s house. The families arrived at the dollar amount by taking the average of two state-approved appraisals on the twenty-seven acre land and house. The neighbors put $50,000 down and took out a mortgage on the remainder to insure that a convicted sex offender is not among them. When analyzed from an economic perspective, it is clear that the problem of what to do to prevent Hawes from moving in is reciprocal. According to Coase, the traditional question would be if Hawes inflicts harm on the residents of Dilley how should Hawes be restrained. The real question is who should be allowed to harm whom to avoid the more serious harm. To analyze which harm is greater, both sides must be taken into account. The neighbors are attempting to avoid the potential harm to their neighborhood. With Hawes arrival, they are on heightened alert for their children’s safety. This constant fear brings down the property values in the neighborhood because of its undesirable nature. Hawes is also harmed by not being able to move into familiar surroundings that he has a legal right to move into. In the end, the neighbors decided that the harm was great enough to warrant paying Ms. Brewton to not allow Hawes to move in. Oregon has long had some of the most stringent sex offender laws. Even before the federal enactment of Megan’s law, convicted sex offenders in Oregon were required to post a black and yellow sign titled “Sex Offender Residence.” in their window. Now as part of Megan’s law, all registered sex offenders released from prison must meet certain living requirements as part of their parole/probation. Even after release, parole officers and psychiatric counselors strictly observe sex offenders. According to parole officer Bob Severe, the intended residence met the requirements because it was on an isolated twenty-seven acres. Upon release from prison, there are some restrictions on where a sex offender can live, but generally their civil rights are intact. Megan’s law amounts to a second sentence to sex offenders; however neighbors would argue that any inconvenience on the life of a sex offender is clearly outweighed by the neighbors' right to know that a potentially dangerous ex-convict has moved in next door. In order for the transfer of property to take place, both parties must feel like they are maximizing their utility (put in a win-win situation). The final solution derived at is a maximization of utility because it is better than alternative solutions. Assuming Hawes had moved in, none of the parties would be better off. Everybody involved would live in constant fear. The neighbors would fear the terrible things Hawes might do to children and Hawes 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 lot of all concerned.” The neighborhood’s utility is increased by not having Hawes in the neighborhood, while Hawes’ utility is no worse off by his mom receiving the fair market value of the property and moving to a different community. Coase Theorem, transaction costs, and externalities: The Coase theorem assures that, absent transaction costs, resources and rights will end up in the hands of those who value them most. In this situation, despite the transaction costs, the house ended up in the hands of the people that valued it the most. The transaction costs in this problem were minimal and limited to the costs for meetings regarding Hawes, preventative education measures (i.e., watchdog information, use of deadly force research), coordination of the neighborhood, and communication with Ms. Brewton and the bank. The larger number of involved parties meant increased difficulty in coordination, mortgage lending, etc., but did not raise the transaction costs high enough to prevent a transaction This problem also involved externalities that must be examined. The purchase deprived Hawes of living in familiar surroundings in which he might be able to adapt to society more quickly. This can be viewed as a negative externality because the activity of the neighborhood imposed a cost on Hawes. Additionally, there are positive externalities for the neighbors who chose not to pay to remove Hawes. The neighbors not paying for the mortgage are reaping the benefits of the activities of others without paying for those benefits. This is also known as free riding. In the end, who really is a winner in a situation like this? The neighborhood rid itself of a convicted sex offender, but at least three families will be making hefty payments as a result. Certainly, Jonathan Hawes is not a winner because he will be branded a sex offender for life under Megan’s law, even if he becomes a productive member of society. The next community Hawes decides to settle in will deal with the same issues. In actuality, the real winners in this situation are the free riders from Dilley, Oregon who purged themselves of a sex offender without paying a penny. In this case money can buy happiness, but so can sitting on your hands. Bibliography:

Word Count: 1331