«

»

Jun 19

Print this Post

A Classic Coase Solution to a Modern Problem: The CrossFit Dispute

A recent Wall Street Journal (“WSJ”) article brought to my attention a very “2K15” problem, urbanites in many of the nation’s big cities are struggling to deal with the annoyance of living next to CrossFit gyms. CrossFit is a highly intense workout regimen which has in the last several years become hugely popular. Many of its adherents consider the community associated with their “Box” (CrossFit lingo for their local gymnasium) and the culture associated with CrossFit in general, to be intoxicating. Put simply, “doing CrossFit” is as much a statement of ones’ persona as it is a definition of ones’ preferred workout.

The major downside of living or working next to a CrossFit Box grows out of the CrossFit workout regimen itself. A workout typically entails Olympic lifts, which by nature are somewhat violent and often involve dropping very heavy weights from above head level (i.e. 100-300 pound barbells dropped from a height of six plus feet), paired with loud energizing music. Adding to the mix, a Box can be built in nearly any XYZ by ZYX sized space. Typical locations, at least in my area, are storefronts. The WSJ article details locations on the ground floor of mixed use condominium buildings, offices buildings, and industrial spaces. The chief complaints of neighbors – especially those who share a wall with a Box – are vibrations caused by the dropping of weights and loud music. Often local ordinances do not pertain to such problems during daylight hours. As such several lawsuits, petitions, and in at least one case a restraining order, have popped up between Box owner/operators and irate neighbors.

An exemplar dispute concerns a recording studio in Los Angeles, next to which a CrossFit Box recently opened shop. The producer who runs the recording studio asserts that the Box’s vibrations and loud music are disruptive to his recording sessions. While the Box owner/operator claims that he is fully within his rights as a renter of industrial space to make noise. Who is “right” here? In order to obtain an economically efficient outcome, does it even matter who is right, i.e. who is liable?

This scenario reminded me of a nearly parallel example in economics: the classic case of the Baker with loud, antiquated equipment who shares a wall with a Doctor who needs peace and quiet to see his patients. This case study was introduced by Ronald Coase to explain his namesake Coase Theorem.

Coase was award the Nobel Prize in Economics for what essentially boiled down to a casual dinner table proof. Much to the surprise of Coase’s University of Chicago contemporaries, it turns out that it does not matter who has liability for the damages. As long as two key conditions are met, “guilt” has nothing to do with obtaining an economically efficient outcome. These two conditions are that (i) property rights are clearly established, and that (ii) negotiations are feasible (i.e. transactions costs are low).

The Baker in our example is the CrossFit Box Operator, and the Doctor is the Music Producer. In order for the Producer to do his work, he needs relative silence. However, in order for the Box Operator to sell his wares and conduct a workout class, he needs to make noise. In both cases, noise (or the absence of it) can be thought of as an economic input to production.

YCrossFit Box Operator   =  L + K + Noise

YMusic Studio Producer  =  L + K + Silence

Here’s the rub. Most people would assume that the Doctor and Music Producer have a right to silence, and as such the burden of relieving the negative externality falls on the Baker or CrossFit Box Operator. This is a legal issue, not an economic issue. Who is to say the Box Operator or Baker doesn’t have the right to make noise? And the rub….from an economic perspective it doesn’t matter.

What Coase so eloquently pointed out is that the most efficient solution is for the fix to be made by whichever side can do it most cheaply. If it costs $1,000 to install softer mats in the CrossFit Box, or buy quieter machinery for the Baker, versus $20,000 to install heavier sound proofing in the Music Studio or Doctor’s office, then – regardless of liability – the former parties should make the upgrade. Now, Coase does not say who should pick up the tab. His theorem merely weighs in on what will lead to an efficient outcome.

What enables this efficient outcome? Having (i) clearly established rights: it does not matter who has the right to noise or silence, as long as it is clearly established. And having (ii) feasible ability to negotiate/low transaction costs – if the two parties are unable to sit at a table together and/or it is prohibitively expensive (finically or otherwise) to do so, the Coase market driven solution is not workable.

So, per our real life example of CrossFit disputes and litigation, what has Coase taught us as in terms of a framework to finding a remedy?

  • Rights Matter! – Local governments would be well advised to come up with clear cut regulations as to how much noise gyms can produce, and/or how much silence neighbors can demand. In terms of obtaining an efficient outcome, who gets what rights does not matter as long as the rights are clearly defined.
  • Parties Must Be Able to Negotiate At Low Cost! – If the turmoil created from sitting down at the negotiating table is larger than the savings obtained through negotiation, it has (less than) no value and will not occur. The logical solution to this is for an arbitration, mediation, or a friendly deal between neighbors to occur before tempers get too hot or before either party gets too “invested” in their position. This can mean politically, emotionally, or financially invested.
  • As such, the local government after clearly establishing who has the right to what should encourage low cost mediation between the two disputing parties.
  • The result of the mediation should be a solution which is implemented on the physical location where it can be done the cheapest (i.e. the most efficiently), which is paid for by the party whom the government defined as not having the right to noise/silence.

 

Thus, if the Music Producer is assigned the right to quiet, however it is determined that improving the insulation of his Studio is cheaper than installing noise dampening mats, thicker walls, and rubberized weights in the CrossFit Box, efficiency economics says the Music Producer should make the improvements and thus get rid of the externality. However, the Box should pick up the bill.

About the author

Devin Yaeger

Devin Yaeger is a consultant at Fulcrum Inquiry, an accounting, finance and economic consulting firm specializing in complex litigation, forensic investigations and appraisal issues across a broad spectrum of industries.

Permanent link to this article: http://betweenthenumbers.net/2015/06/a-classic-coase-solution-to-a-modern-problem-the-crossfit-dispute/

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

*