Final answer:
The externality in this situation is the loud rock 'n' roll music that Ringo plays, which is a negative externality for Luciano. The landlord can impose a command-and-control policy to regulate noise levels. According to the Coase theorem, Ringo and Luciano could negotiate and reach an efficient outcome on their own.
Step-by-step explanation:
a. The externality in this situation is the loud rock 'n' roll music that Ringo plays, which is a negative externality for Luciano who hates rock 'n' roll and finds it disruptive.
b. The landlord can impose a command-and-control policy by setting rules and restrictions on noise levels in the building. For example, the landlord could enforce quiet hours during certain times of the day or require tenants to use soundproofing measures. However, such a policy may lead to an inefficient outcome if it is too restrictive and limits the tenants' freedom and enjoyment of their own space.
c. According to the Coase theorem, Ringo and Luciano could reach an efficient outcome on their own through negotiation and bargaining. They could, for example, come to an agreement where Ringo agrees to lower the volume of his music during certain times or use headphones, and in return, Luciano agrees to tolerate some level of noise. However, reaching an efficient outcome might be prevented if the parties have difficulty communicating or if they have significantly different preferences or values that make it challenging to find a mutually beneficial solution.