A few times a year, parades and street fairs shut down the streets around my house. They’re often fun, but also have negative externalities: severe traffic and parking problems, a five-minute walk takes 30 minutes because pedestrians can only cross the street in a few designated places, noise and crowds, litter, etc.

So there’s a trade-off to navigate. Most cities use local government as the referee. A committee of workers decides whether the applicant’s parade (or protest or street fair) is worth the negative externalities. The quality of these decisions varies widely, since they rely on the workers’ ability to accurately total up costs and benefits — an impossible task when one parade affects thousands of people and businesses. And there’s the added wrinkle that the committee’s decisions are subject to political lobbying.

In most of your life, this is a solved problem — to use someone’s property, you convince them (with money, generally) to let you. That’s a tidy solution, but public spaces are jointly owned by a city’s residents. So in a city with a population of 100,000 where 5000 want to throw a parade, they convince the government to grant them the use 95,000 third parties’ property. (The government plays property manager here, because it’s impractical to negotiate with 95,000 people individually.)

This is actually just a transferrable property right, a very common thing. The unique thing about this property right is that it’s jointly owned by 100,000 people, and the government can temporarily transfer it (with some restrictions) to any subgroup.

If everyone likes that, great, there’s no problem. But that’s the boring case. Here’s the interesting one: what if the government underestimates the negative externalities, or overestimates the benefits? Currently there’s no check on that, and not even a way to know if it happened. If we assume for practical reasons that parade permits will always be a government decision, how can we measure the externalities? In other words, how can we measure a neighborhood’s willingness to host a parade?

If the government is granting a transferrable property right to the parade organizers, the efficient solution is to keep it transferrable—let the organizers transfer it back to the neighborhood.

The government’s role stays the same. Take parade applications and either approve or deny them. The difference is what happens next. Neighborhood residents (or anybody else) can pay into a Kickstarter-style fund to buy the property right back from the parade organizers. At any point, the organizers can take the money and move their parade elsewhere. That would be a strong empirical signal that:

  1. The parade isn’t getting a lot of value from being in that specific location.
  2. The parade’s neighbors badly want it to move, as evidenced by their shelling out to make that happen.

If both of those conditions are met, then moving the parade in exchange for a fee benefits all parties. There’s also a second-order effect that the organizers can use the money to make the parade even better in its new location.

If the organizers never take the deal, no money changes hands and we get a clear empirical signal that:

  1. The parade’s location is very valuable to its supporters.
  2. For the neighbors, the positive externalities outweigh the negative ones. Or at least to whatever extent they don’t, that’s itself outweighed by the value the pro-paraders are getting from this location.

In that case, keeping the parade in the original location benefits all parties.

This approach balances all of the competing interests while reducing the amount of coercion in these events, keeping bureaucratic involvement to a minimum, and without requiring any changes to the law.

Let’s test this harshly and run through the possible objections:

Parade organizers will go around extorting neighborhoods by threatening to hold parades there

It’s expensive to put on a parade. If the organizers want to stay in business, they can’t afford to put on parades that they don’t genuinely want to put on. One or two frivolous ones will put them out of business. Also, remember that the city government still has to approve the initial parade permit, so frivolous applications will tend not to get through that process.

Finally, neighborhoods don’t have to pay. They can simply do nothing and host the parade, which in the current system is their only choice. This proposal just adds optionality for all parties, without adding any force.

Rich neighborhoods will push parades off onto poor neighborhoods

There’s actually good evidence that rich neighborhoods like to host some parades and street fairs — for example, the wildly popular Village Halloween Parade and Macy’s Thanksgiving Day Parade go through the heart of some of the world’s most expensive real estate.

While they do have downsides, parades have positive externalities too. Sometimes those are outweighed by the negative ones, sometimes they aren’t. Each neighborhood can judge that balance for itself. The answer will vary from area to area, event to event, and time to time. A rich neighborhood might be excited to host a certain parade that a poorer area doesn’t want, or vice versa.

Rich people will eliminate parades, denying everyone else the pleasure of attending a fun event

The parade organizers retain the option to turn down the deal and proceed with the original plan.

What to do with this information

Ha! Nothing, there’s no chance a city government would try this. But thinking about it on your own is useful practice for working property rights concepts into your everyday life. (For example in child-rearing or the workplace. More on that in the future.)