Hayden and Josh are roommates. They share one bathroom. If Josh cleans the bathroom it takes him one hour. If Hayden cleans the bathroom, it takes him 30 minutes. They both clean the bathroom equally well and both find the job disagreeable. Each of them experiences unpleasantness valued at $100. This $100 accounts for both the opportunity cost of their time and the unpleasantness of cleaning the bathroom. (Another way of thinking of this is that each would happily pay $100 or less to avoid cleaning the bathroom.) When the bathroom is clean, they each experience $75 of wellbeing. (The feeling they get from a clean bathroom is equal to the value they would get from someone giving them $75.) This $75 captures all the wellbeing they get from the clean bathroom including how they feel about the benefit to others who visit or live in their household. a) If Josh cleans the bathroom, what is the total benefit for the household? Does this exceed Josh’s costs?

b) Do you think that Josh will willingly clean the bathroom? Why or why not?

c) Can you think of a ‘regulatory’ solution to their bathroom cleaning problem? Explain.

d) Can you think of a ‘market-based’ solution to their bathroom cleaning problem? Explain.