A Coasean analysis of the effects of compensation mechanisms on the willingness to accept or pay for relaxing the dog-keeping ban in public rental housing for enhancing well-being in Hong Kong

Abstract

This study investigates how Coasean bargaining mechanisms can reconcile conflicting interests between dog owners and non-owners in Hong Kong's public rental housing (PRH), where a strict dog ban has been in effect since 2003. Despite growing recognition of the well-being benefits of pet ownership, the Housing Authority maintains this prohibition, creating tension between housing regulations and evolving understandings of resident welfare. This research uses the Coase Theorem and Kaldor-Hicks efficiency framework to examine whether compensation mechanisms can facilitate policy change while optimising social welfare. Through an online survey employing stated preference methods, the study assessed non-dog owners' willingness-to-accept (WTA) for different compensation mechanisms and the willingness-to-pay (WTP) of dog owners for dog-keeping rights. Results reveal that spatial separation (floor allocation system) and community governance (volunteer dog owners' group) were most effective in increasing policy acceptance among non-dog owners, producing 9.3 and 11.2 percentage point increases, respectively. Financial compensation showed modest effectiveness (+5.6pp). Conversely, estate improvements decreased overall acceptance (-3.7pp). Most dog owners were willing to pay a 5–10% rent premium or contribute two service hours per week, confirming the feasibility of hybrid policy models. For open spaces in PRH, households with children were less likely to accept dog-inclusive open spaces, suggesting safety concerns and an underrecognition of potential well-being benefits. The study contributes to welfare economics and public housing policy by demonstrating how the Coase Theorem can be applied in high-density urban settings. The research offers practical recommendations for implementing pilot programs that combine spatial separation with community governance structures, rent adjustment mechanisms, and designated dog-inclusive areas. This approach may enhance resident well-being while managing externalities through negotiated solutions rather than blanket prohibitions. It could also serve as a template for addressing other contentious policy areas in dense, urban environments.