| Game: #21 | |
| Course: | Micro |
| Level: | Graduate? |
| Subject(s): | Unions/Labor-Management negotiations |
| Objective: | Costs of negotiating are different for each party |
| Reference and contact: | D.A. Lax and T.T. Weeks; Harvard Business School 1993/94 Teaching Catalog; Order number 9-186-141 Case (Gen Exp), phone: 800-545-7685; http://www.hbsp.harvard.edu |
| Abstract: | "This game is a highly structured exercise in labor-management bargaining. If union and management cannot reach agreement within two days, then the union will strike. The costs of a strike are not the same for the two sides. Similarly, the cost of a settlement to management differs from its benefits to the union. Union and management players frequently feel that they are more powerful, hold out, endure a strike, and do poorly relative to other players." |
| Class size: | Unknown |
| Time: | Unknown |
| Variations: | Unknown |
| See also: | Input market and Bargaining games |
| Game: #22 | |
| Course: | Micro |
| Level: | Graduate? |
| Subject(s): | Game theory/externalities/government regulation |
| Objective: | Students come to see that joint gains must be created and divided and that the tension between competitive and cooperative urges often lead to inferior agreements. |
| Reference and contact: | D.A. Lax and T.T. Weeks; Harvard Business School 1993/94 Teaching Catalog; Order number 9-186-125 Case (Gen Exp), phone: 800-545-7685; http://www.hbsp.harvard.edu |
| Abstract: | "A negotiation exercise between Riverside Lumber Co. and the Division of Environmental Conservation about reducing the effects of effluent discharge in a river. Students are assigned to a role and receive confidential information including a scoring system detailing the costs and benefits of various proposals. Though their interests conflict, joint gains beyond simple agreement can be found. Students come to see that joint gains must be created and divided and that the tension between competitive and cooperative urges often lead to inferior agreements. Means for managing this tension can then be discussed. This game can be used as a complex example of bargaining with incomplete information." |
| Class size: | Unknown |
| Time: | Unknown |
| Variations: | Unknown |
| See also: | Externality games |
| Game: #23 | |
| Course: | Micro |
| Level: | Graduate? |
| Subject(s): | Externalities/Marginal Cost Pricing/Tradable Pollution Allowances |
| Objective: | Designed to teach students about the trade-offs faced by firms exploring alternative approaches to complying with pollution control regulations. The setting is the U.S. electric utility industry in 1993. |
| Reference and contact: | W. Emmons; Harvard Business School 1993/94 Teaching Catalog; Order number 9-793-072 (Exercise), phone: 800-545-7685; http://www.hbsp.harvard.edu |
| Abstract: | "In accordance with the provisions of the 1990 Clean Air Act, coal-burning utilities must lower their emissions of SO2 (sulfur dioxide) significantly by 1995, and then reduce their emissions by an additional 50% by the year 2000. In this stylized negotiation each utility has the option of complying with the regulations through one of three methods: 1) by installing pollution control equipment ('scrubbers'); 2) by substituting high sulfur coal; and/or 3) by purchasing tradeable SO2 allowances from other firms that overcomply with the emission control legislation. Not only must each utility reduce its emissions by a different amount, but the costs faced by each firm with respect to scrubbing and fuel switching differ as well. Also, assumptions relating to the state regulatory environment differ across negotiating groups. Negotiations take place in groups of four utilities and separate scenarios are available for three distinct groups. (See Supplements)." |
| Class size: | Unknown |
| Time: | Unknown |
| Variations: | Unknown |
| See also: | Externality games |
| Game: #24 | |
| Course: | Macroeconomics, Money and Banking |
| Level: | Principles and up |
| Subject(s): | Fiat money/medium of exchange/introduction to the money chapters |
| Objective: | To teach students that and how fiat value (without intrinsic value) becomes valuable |
| Reference and contact: | Fried, Harold O. and Daniel Levy. "Beans as a Medium of Exchange." Classroom Expernomics, 1(1), Spring 1992, p. 4. and Levy, Daniel and Mark Bergen. "Simulating a Multiproduct Barter Exchange Economy." Economic Inquiry, 31, April 1993, pp. 314-321. |
| Abstract: | In Levy and
Bergen, the class is divided into small groups of 2-3
students each. Each group is supplied with a basket
containing food items and utensils, but not each basket
contains both. The items in each basket make for an
incomplete meal but the total amount of food distributed
is enough to feed the entire class. Students are allowed
to make whatever trade they desire; the only restrictions
are that trades based on credit are not allowed and
unused items must be returned to the instructor. Students
record their initial endowments, final consumption
bundles, and all trades on a simple form. After all
trades have been made, the instructor leads the class in
a discussion focusing on the properties of barter
exchange relative to monetary exchange. Fried and Levy is identical except that some baskets contain some beans and there are two trading periods. At the end of period one, each group has to pay a previously announced 'tax' in the form of beans. Before play, it is also announced that at the end of period two, another tax is due, but that the size of that tax will only be announced at the beginning of period two. Students may not eat until the end of period two. Unsurprisingly, beans obtain value as a medium of exchange. |
| Class size: | Small, adaptable to large |
| Time: | One class period |
| Variations: | None indicated |
| See also: | Money games |
| Game: #25 | |
| Course: | Macro |
| Level: | Principles and up |
| Subject(s): | Rational expectations |
| Objective: | To introduce "the concepts of rational and adaptive expectations, the Lucas supply curve, the natural rate hypothesis, and random supply shocks" (Peterson, 1990, p. 76) |
| Reference and contact: | Peterson, Norris A. "A Rational Expectations Experiment." Journal of Economic Education, 21(1), Winter 1990, pp. 73-78, or contact Dr. Norris A. Peterson; Department of Economics; Pacific Lutheran University; Tacoma, WA 98447; petersna@plu.edu |
| Abstract: | The class is
divided into 6 teams of students, each representing a
supplier. Each team is given a handout that lists
absolute price increases for each firm during the
(fictitious) last eight time periods. The handout also
lists the average price increase across all six firms
(randomly drawn from a normal distribution with mean=5
and standard deviation=2.5). Thus, firms with below
average price increases should consider lowering
production, firms with above average price increases
should consider expanding production, and firms with
average price increases should neither expand nor
contract production. Two practice rounds (time periods 9 and 10) are played. Each team is given a card that lists the absolute price increase for its firm only. The teams have to decide whether to expand, contract, or leave production unchanged (signaled by "+," "-," and "0" cards). Unknown to the students, the mean is again set at 5, with a standard deviation of 2.5. Based on the 'last' eight rounds, typically the teams' "+"s and "-"s even out, so that aggregate supply stays unchanged. For the first 'real' round (time period 11), the average price increase is changed, unexpectedly and unknown to the students, to 8 percent. But on the basis of the past 10 rounds and with teams only knowing their own firm's price increase, all six firms will typically expand production, thus increasing aggregate supply. By round 12 (mean=8 again), teams begin to show adaptive expectations. So, for round 13, the instructor changes the mean again (mean=11), catching the teams off-guard yet again, and by round 14, the teams probably adapt once more. After each round, there's a bit of discussion permitted among students and instructor. By round 15, you may find students asking for additional information, and the instructor could 'publish' past and announced monetary targets (set at mean price plus 2 percentage points). "From this point on [i.e., when a monetary target is published], the teams will be quite accurate in their forecasts of inflation; subsequent rounds demonstrate that the monetary authorities are powerless to influence aggregate supply. Rather, any fluctuations in output are due to random disturbances associated with imperfect correlations between the money supply ... and average price increases" (Peterson, 1990, p. 75). |
| Class size: | Sufficient to allow for 6 teams of students (could be adapted for larger classes) |
| Time: | One class period |
| Variations: | None indicated |
| See also: | Monetary policy games |
| Game: #26 | |
| Course: | Micro |
| Level: | Principles and up |
| Subject(s): | Supply |
| Objective: | To illustrate the differences between sunk and marginal costs. |
| Reference and contact: | Haupert, Michael J. "Sunk Cost and Marginal Cost: An Auction Experiment." Classroom Expernomics, 3(1), Spring 1994; haupert@mail.uwlax.edu |
| Abstract: | A dollar bill is auctioned off under the following rules. The auction is conducted as an English auction with the highest bidder winning the dollar. All bids are recorded on the blackboard. The winning bidder must pay a price equal to his or her bid. All other bidders must also pay a price equal to their bid, though none of them get the dollar. The auction inevitably leads to a "bidding war" as bidders realize that, if they are not the high bidder, they will "lose" an amount equal to their bid with nothing to show for it. After the auction, the instructor informs the class that he will return the auction proceeds to the class, but they must decide how to divide it up. The resulting discussion among students can lead to an interesting foray into further questions of allocation and fairness. |
| Class size: | Any size. |
| Time: | 15 to 20 minutes. |
| Variations: | Allow students to collude during a bidding round by encouraging communication among students. Instead of requiring all bidders to pay their bids, require only the top two. |
| See also: | Supply and Auction games |
| Game: #27 | |
| Course: | Micro |
| Level: | Principles and up |
| Subject(s): | Diminishing returns |
| Objective: | Illustrate a production process subject to diminishing returns to the variable input. |
| Reference and contact: | Hazlett, Denise. Economic Experiments in the Classroom. Reading, MA: Addison Wesley Longman, 1999. (Experiment #8); hazlett@whitman.edu |
| Abstract: | Identical to Neral (1993) except that peanut butter and jelly sandwiches are made instead of widgets. |
| Class size: | Any number. |
| Time: | 30 minutes. |
| Variations: | None indicated. |
| See also: | Supply games |
| Game: #28 | |
| Course: | Micro and Macro |
| Level: | Principles and up |
| Subject(s): | Diminishing marginal returns |
| Objective: | Illustrate a production process subject to diminishing returns to the variable input. |
| Reference and contact: | Yandell, Dirk. Using Economic Experiments in the Classroom. Upper Saddle River, New Jersey: Prentice Hall, 1999a. (Experiment #6); yandell@acusd.edu |
| Abstract: | Identical to Neral (1993) and Hazlett (1999) except that a folded paper factory is the setting. |
| Class size: | 10 to 40 students. |
| Time: | 30 minutes. |
| Variations: | None indicated |
| See also: | Supply games |
| Game: #29 | |
| Course: | Micro |
| Level: | Principles and up |
| Subject(s): | Ultimatum bargaining |
| Objective: | To illustrate several basic economic principles including the difference between equity and efficiency, marginal analysis, sunk costs, strategic behavior, and opportunity costs. |
| Reference and contact: | Yandell, Dirk. Using Economic Experiments in the Classroom. Upper Saddle River, New Jersey: Prentice Hall, 1999a. (Experiment #2); yandell@acusd.edu |
| Abstract: | Students are paired up and given the task of dividing a fixed sum of money. The Proposer makes a proposal to the Responder, who can either accept or reject the proposal – negotiation is possible. If the proposal is accepted, students earn the amounts specified in the proposal. If the proposal is rejected, each student receives a zero payoff. The game is played for 10 rounds. |
| Class size: | Any number of students. |
| Time: | 30 minutes. |
| Variations: | Instructor could allow players to openly communicate with each other, students could play against an anonymous partner, or substantially higher stakes could be used. |
| See also: | Bargaining games |
| Game: #30 | |
| Course: | Micro |
| Level: | Principles and up |
| Subject(s): | Market equilibrium |
| Objective: | Demonstrate the convergence toward equilibrium of a simple pit market. |
| Reference and contact: | O'Sullivan, Arthur and Steven N. Sheffrin. Economics. Upper Saddle River, New Jersey: Prentice Hall, 1997 (pp. 76-77). arthur.osullivan@orst.edu ; smsheffrin@ucdavis.edu |
| Abstract: | Simple pit auction market in which students are divided into two equal groups of buyers and sellers and each student is provided with different reservation prices. Students gather at the front of the room and proceed to negotiate trades with each other over a series of periods. |
| Class size: | 8 to 30 |
| Time: | 30 minutes. |
| Variations: | Instructor may impose price ceilings, floors, issue licenses to subset of sellers, or divide sellers into domestic sellers and foreign sellers, and some of the foreign sellers are prohibited from selling in the market. |
| See also: | Price system games |
| Copyright 2000 by Greg Delemeester
and Jurgen Brauer Last Updated: 02/20/2005 |