Claire’s favorite holiday is Halloween, but last year she may have went a little overboard to the point that the homeowners association forbid the Dunphey’s from doing particular things this Halloween. Claire’s goal is each Halloween is to produce a scary experience for trick-or-treaters visiting, but even Phil thinks she may have gone too far investing in professional grade makeup. He suggests that she could be twice as scary without wearing any makeup at all.
Another way to view this clip is through the impact of private benefits and social costs. Claire spends a lot of money each year on Halloween decorations, but her private benefits may not exceed the social costs imposed on neighbors (at least according to the HOA). The social costs of her decisions include someone wetting themselves and someone having a heart attack. While Claire may factor these into her investment decision, the HOA determined that the social costs outweigh the social benefits and has opted for a command-and-control approach to Halloween decorations at the Dunphy house.
See more: command and control, decreasing returns, diminishing marginal returns, government regulation, marginal utility, negative externalities, negative returns, role of government, utility
Homes and yards that are improperly maintained decrease the property value of neighbors. This is a negative externality. To prevent this from happening, many modern neighborhoods have an HOA. The HOA decides what changes homeowners are allowed to make to their property and act as a non-market solution to externalities. They only allow changes that either do not impact the property value of other homes (no externalities) or that increase the property value of other homes (a positive externality). In this clip, Claire attends her HOA’s meeting. She submitted a proposal to build a “she shed” in her backyard that was denied. She believes this was not appropriate because the shed won’t be visible from the street and will not impact neighbor property values. What she doesn’t know is that her son, Luke, intercepted the request and responded with a fake denial so the HOA doesn’t understand why she is so belligerent. Phil shows up to warn her but is a little late…
See more: Coase theorem, collective action, government regulation, negative externalities, non-market solutions, permits, regulation, role of government