The Efficient Siting of Noxious Facilities Under Majority Rule Decisions

A difficult and challenging decision facing policy makers is the allocation of goods that generate externalities. It is well known that markets forces alone will lead to inefficient outcomes. Of particular interest in modern industrial societies is the task of choosing locations for siting noxious facilities such as waste treatment facilities, landfills, or nuclear waste repositories. Such facilities are often associated with the NIMBY (Not In My BackYard) syndrome (O’Hare et al., 1983). While such facilities are important parts of production economies, individuals are averse to these facilities in their “backyard” because, all else equal, proximity to such a noxious facility lowers utility. This last point is well documented in a large literature that indicates a negative relationship between proximity to such facilities and lower housing prices (Farber, 1998; Ihlanfeldt and Taylor, 2004; McCluskey and Rausser, 2003). Also note that while the discussion is often framed in terms of siting facilities, the idea is equally applicable to allowing or not allowing particular activities at specific locations, such as changes in land use or resource extraction.